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apteacher

Fees Take Huge Toll On 403(b) Plans

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The bar graph displayed in this article from the main page of 403bwise is absolutely devastating. It shows the difference between paying 2.25% for a variable annuity versus paying .18% for an index fund. It assumes 35 years of contributing $250 per month with an 8% return. After 35 years, the difference is more than $200,000.

 

In some cases, this understates the difference. For example, if an investor pays a front end load, the difference would be even greater. And investors can easily pay more than 2.25% with awful investment vehicles like NEA Value Builder.

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A variable annuity would not have a front end load and an expense of 2.25%. If the investor and his advisor did choose a product with a front end load the difference in returns would be less. These examples are

hypothetical. In the real world the 35 year old would never get started at age 35 without the assistance of an advisor and would never on his own choose an index fund with the lowest cost on the planet. You are all missing the point with your focus on expenses. The real factor in investing success is time in the market. The real advantage of an advisor is the value he adds over what the investor would do on his own.

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A variable annuity would not have a front end load and an expense of 2.25%. If the investor and his advisor did choose a product with a front end load the difference in returns would be less. These examples are

hypothetical. In the real world the 35 year old would never get started at age 35 without the assistance of an advisor and would never on his own choose an index fund with the lowest cost on the planet. You are all missing the point with your focus on expenses. The real factor in investing success is time in the market. The real advantage of an advisor is the value he adds over what the investor would do on his own.

 

 

Don't bother, AP is never wrong.

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Um according to the chart even at a 1.4 er there will be a $140000 difference. The problem I have is that every 403b salesman I worked with from the time I was 23 to now 39 has given little education for the fees I was paying. 403b Agent the only thing I agree with you on is yes time in market is a big factor. But Are you saying Asset allocation and Fees don't matter?

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A variable annuity would not have a front end load and an expense of 2.25%. If the investor and his advisor did choose a product with a front end load the difference in returns would be less. These examples are

hypothetical. In the real world the 35 year old would never get started at age 35 without the assistance of an advisor and would never on his own choose an index fund with the lowest cost on the planet. You are all missing the point with your focus on expenses. The real factor in investing success is time in the market. The real advantage of an advisor is the value he adds over what the investor would do on his own.

 

 

You make a great point about time in the market. No question about that.

 

But you make it sound as if people are incapable of taking financial responsibility for themselves, or perhaps are unwilling to do so. True, teachers have relied upon agents for years. As more information becomes available to teachers, that may change a bit. For example, the 403b Compare site has opened the eyes of many teachers at my school.

 

Now, let's set aside the front load issue and see if expenses of 2.25% on a variable annuity are "hypothetical" or whether they have some basis in reality.

 

Let's take NEA's Valuebuilder variable annuity:

 

- Mortality & expense charge: .90

- Administrative fee: .15

 

That's a total of 1.05. To that we add underlying fund expenses. Here are some examples:

 

Drefus Money Market: 1.01%

Security Large Cap Value: 1.49% + 12b-1 fee of .25 = 1.74

AIM Mid Cap Core Equity: 1.27 + 12b-1 fee of .25 = 1.52

Calamos Growth: 1.19 + 12b-1 fee of .25 = 1.44

 

So when we add M&E + administrative fee + underlying expenses + 12b-1 fees (if any), we have total expenses of:

 

Dreyfus Money Market: 2.06%

Security Large Cap Value: 2.79%

AIM Mid Cap Core Equity: 2.57%

Calamos Growth: 2.49%

 

It appears that the 2.25% "hypothetical" example understates expenses in three out of these four cases. Furthermore, the prospectus notes that underlying expenses of funds can go as high as 3.20%. Coupled with M&E of .90 + administrative charge of .15, that is a whopping 4.25%. This is not hypothetical. It is real.

 

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A variable annuity would not have a front end load and an expense of 2.25%. If the investor and his advisor did choose a product with a front end load the difference in returns would be less. These examples are

hypothetical. In the real world the 35 year old would never get started at age 35 without the assistance of an advisor and would never on his own choose an index fund with the lowest cost on the planet. You are all missing the point with your focus on expenses. The real factor in investing success is time in the market. The real advantage of an advisor is the value he adds over what the investor would do on his own.

 

 

Don't bother, AP is never wrong.

 

Not a particularly constructive comment.

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