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gdh22

403(b) Allocation

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I often wonder how the Federal Government managed to get it right when it created the Thrift Saving Plan.

Basically the TSP provides a guaranteed fix income fund (the "G" Fund) and 4 index funds. Costs are about 6 to 8 basis points. There's no reason in the world that State Treasurers can replicate the TSP for all teachers in their state, and keep the costs below 50 basis points so some financial education could be provided.

 

It takes a little bit of vision but a lot of moxie to tell the VA vendors bye--in the best interests of the employees.

 

Ted

 

 

 

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Guest Chuck Yanikoski

Hey, Steve --

 

I don't know that I have ever publicly expressed an opinion about active vs. passive investment, and in fact I have gone through most of the same ruminations you have. Furthermore, I tend to agree with you...

 

It is possible to think about these things on several levels. First, are YOU making the investment decisions, or is a professional manager doing it? If YOU are doing it, then active management is something of a game, a hobby, or both, and this element can justify the activity. If you have the time and inclination, you can have fun and make money at the same time!

 

If a professional is doing it, though (as in a 403(b) plan), then you have to ask whether there is some reason to believe that this particular professional is going to outperform everyone else. The reality is that the overwhelming majority of investment in this country is managed by professionals. Most of them have sophisticated analytical tools, research, training and other advantages that the rest of us don't have. But since they are mostly competing against EACH OTHER, not us, if you want active management you need to find someone who has some additional advantage over his/her PEERS. There may be people like that, but I have never heard of a reliable way of finding them, so it's basically a crap shoot. (A recent study, for example, showed that the vaunted Morningstar rating system was no better than chance at identifying mutual funds that would perform well in the future.)

 

It might seem that the only reasonable method is to find people who have been pretty consistently successful in the past. Unfortunately, even an entire career of investment management offers only a limited number of data points, and statistically speaking, it is pretty meaningless. At the 95% level of probability, one in 20 managers will "significantly" outperform the market, even if all of them were just throwing darts to make their investment decisions. My own view is rather contrarian: the LAST person I would trust is the person who was a winner the last five years in a row, because that person is probably getting overconfident by now and is likely to start slipping up. But really, who knows?

 

I think index funds are great, and in terms of my own personal investment I switched over to them quite a few years ago. Where I do think that there are opportunities, though, is in moving money around to different classes of investments: stocks vs. bonds vs. short-terms vs. whatever other options you might have in your plan. All markets have important cylcical components, and there are times when certain markets are clearly oversold or undersold, and if you are willing to buck the herd, there are almost always good opportunities out there. The "efficient market" theory is true only in a tautological sense: it reflects (at best) the average consensus of feeling at any given time. But this consensus is often swayed by group-think, by forgetfulness, by "irrational exuberance", or by sheer stupidity (e.g., the idea in the late 1990s that the nature of the financial markets had fundamentally changed). You don't have to be a stock picker to beat the buy-and-hold strategy -- you only have to be clear-headed enough to see when things have gotten way out of whack (e.g., today short-term interest rates and inflation are near historical lows -- which way do you think they will be heading over the next 5-10 years, and which areas of the market will be helped or hurt? Here's my guess: over the next few years, rising rates are going to hurt both stocks and bonds -- but have you considered overseas funds recently?) If you don't have the time or experience to think through such issues, though, a good professional manager or advisor might be able to help.

 

I guess we can all have opinions, and I doubt that any one point of view will ever prevail. Which I suppose is a good thing, because if everyone thought the same, there wouldn't be much opportunity for anyone to excel.

 

Still, I hope you all get rich out there....!

 

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gdh22

 

This should satisfy your needs...comprehensive 401(k)survey contains 105 tables of data on important topics such as

 

participation rates,

participant deferrals,

company contributions,

investment options,

asset allocation,

internet usage,

vesting, loans, and more.

 

Data is frequently broken down by plan size and plan type.

 

 

http://www.psca.org/DATA/46th.html

 

Excerpt: "80.3% of eligible employees held balances in their 401(k) plans.

 

Pre-tax deferrals averaged 5.2% of pay for lower-paid and

 

6.3% of pay for higher-paid employees....

 

The average company contribution was 4.1% of payroll. Company contributions were highest in profit sharing plans (8.8% of payroll) and lowest in 401(k) plans (2.8% of payroll). Company contributions averaged 25.6% of total net

 

46th Annual Survey

of Profit Sharing and 401(k) Plans

Order 46th Annual Survey

 

PSCA's 46th Annual Survey of Profit Sharing and 401(k) Plans reports on the 2002 plan year experience of 1,046 profit sharing and 401(k) plans. Together, these plans hold over $244 billion in plan assets and include nearly 3.2 million participants. Of the 1,046 respondent plans, 70 are profit sharing plans, 552 are 401(k) plans, and 424 are combination profit sharing/401(k) plans.

 

This year's survey is the most comprehensive to date.

 

Ted

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gdh22

 

This should satisfy your needs...comprehensive 401(k)survey contains 105 tables of data on important topics such as

 

participation rates,

participant deferrals,

company contributions,

investment options,

asset allocation,

internet usage,

vesting, loans, and more.

 

Data is frequently broken down by plan size and plan type.

 

 

http://www.psca.org/DATA/46th.html

 

Excerpt: "80.3% of eligible employees held balances in their 401(k) plans.

 

Pre-tax deferrals averaged 5.2% of pay for lower-paid and

 

6.3% of pay for higher-paid employees....

 

The average company contribution was 4.1% of payroll. Company contributions were highest in profit sharing plans (8.8% of payroll) and lowest in 401(k) plans (2.8% of payroll). Company contributions averaged 25.6% of total net

 

46th Annual Survey

of Profit Sharing and 401(k) Plans

Order 46th Annual Survey

 

PSCA's 46th Annual Survey of Profit Sharing and 401(k) Plans reports on the 2002 plan year experience of 1,046 profit sharing and 401(k) plans. Together, these plans hold over $244 billion in plan assets and include nearly 3.2 million participants. Of the 1,046 respondent plans, 70 are profit sharing plans, 552 are 401(k) plans, and 424 are combination profit sharing/401(k) plans.

 

This year's survey is the most comprehensive to date.

 

Ted

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