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mikew031

Security Benefit's Nea Directinvest Vs. Lincoln Investments Partic

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8 minutes ago, Jrhorns said:

The historical returns have been much better in my current funds than the directinvest fund and the number of funds available are alot better, but I have 10 more years of teaching and its time to let that increasing custodial fee go to work for me. I have been making my own fund changes for the past 5 years anyway.  So the doityouself option should be fine for me. But if the directinvest funds perform 1% less next year than the my current account then the yearly custodial fee really was a wash ... am I right?

Hmmm. Not necessarily. If there was a 1% outperformance in the past, there's no guarantee the outperformance will continue in the future. Index funds outperform managed funds about 2/3 of the time. This fraction gets closer to 100% over time. I suggest you read John Bogle's book Common Sense on Mutual Funds. Also remember that when the market goes negative, the 1+% fees continue. The 5 year rate of return may be significantly different from that of other lengths of time--it's not a good idea to compare only one time period. Just a few ideas to consider. I do own a few Vanguard actively managed funds with ERs around 0.30% (PRIMECAP and Int'l Growth), so I'm not a strict indexer.

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In John Bogle's book Common Sense on Mutual Funds. Bogle compared mutual fund returns to the overall market beginning in 1970 and ending in 2005. At the beginning there were 355 funds.

 

223 funds, 62.8%, were closed before 2005 rolled around.

60 funds, 16.9%, lagged the market by 1% or more.

48 funds, 13.5%, were within + or - 1% of the market (slightly more on the losing side of that coin).

15 funds, 4.2%, beat the market by 1%.

9 funds, 2.5%, beat the market by 2% or more.

 

A fun fact about the 9 big winners, the majority have lagged the market significantly in the past 15+ years and attribute their performance to a period of early dominance (perhaps lucky dominance).

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What are the mutual fund symbols that have outperformed the market and over what time period have they outperformed?

A great way to pick a loser is to buy the fund that performed the best the previous year. I suggest buying funds that you agree with philosophically...diversification is critical, minimizing costs keeps money in your pocket, and nobody can predict the market and if they could why would they use that knowledge to help you?

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This NY Times article on index vs actively managed funds is very convincing to me. https://www.nytimes.com/2015/04/05/your-money/measure-for-measure-index-funds-rule.html?action=click&contentCollection=Your Money&module=RelatedCoverage®ion=Marginalia&pgtype=article&_r=0
The SPIVA table for US stocks shows 85-90% of funds did not outperform their index over 10 or 15 years.

 

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On 12/30/2017 at 12:13 PM, Jrhorns said:

Hello,

i am new to this forum and have been talking with my rep about transferring my money to the the Nea Valuebuilder directinvest.  The expense ratios are extremely low for all funds and the yearly custodial fee and up front sales charge appear to be zero. Unlike my previous option 3 fund which had a 1% custodial fee per year. They are trying to move me to a option 1 fund with a 4% up front sales charge on new investment money and a .35% yearly custodial fee on the total fund balance. Is having an “advisor” worth that much? These “advisors” didn’t even tell me to rollover to option 1 when the fees became greater in my current option 3 fund.  I had to do that on my own.  I am certain that the directinvest is the way to go.  More info to come.

Quote

Account Charges as per Security Benefit: 
Option 1: 5.25% up-front sales charge; custodial account fee: 0.35% per year. 
Option 2: Contingent Deferred Sales Charge (CDSC) ranges from 5% in year 1 to 0% in the seventh and following years; custodial account fee of 1.05% per year. 
Option 3: CDSC is 1% in the first year; custodial account fee of 1.00% per year. 
Administration Fee (for all applicable options) 
$35 a year for accounts less than $50,000. No administration fee for accounts over $50,000.
https://securitybenefit.se2.com/#53&RID=68&prodID=127&prodOpt=3&prodCat=RP Check out quarterly returns.


What are the expense ratios of your funds? Most of the SB funds have an ER of about 1%, which is added to the “custodial account fee” of 1.00%. Fees of around 2% certainly going to cause your portfolio to underperform a 3 fund index portfolio over time.  

If you have $150,000 under Option 1, there are breakpoints that reduce the load to 3.75% on your new contributions. If your funds average ER is ~1%, the drag from annual fees would be 1.35%, plus the front-end load of 3.75%. Again, it’s likely to underperform a 3 fund index portfolio over time. 

If you’d like to see the effect of costs over time, I suggest you check out Vanguard’s compare fund cost tool. You can select a fund from Vanguard and one from another provider. After the calculation, scroll down and change the inputs and recalculate. The tool calculates the costs with inputs of a given amount of investment, an assumed rate of return, over a given time. Notice that it calculates the percent of outperformance needed by the higher fee fund in order to equal the rate of return of the lower fee fund.  
https://personal.vanguard.com/us/FundsCostCompare

There’s little doubt that you would be better off in the NEA Direct Invest plan than in either option 1 or 3!
 

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1 hour ago, krow36 said:

There’s little doubt that you would be better off in the NEA Direct Invest plan than in either option 1 or 3!

I rarely make definitive statements, but I’ll double down on that sentiment and say there is exactly no doubt. 

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