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Freakonomics Podcast

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Barry says it like it is. I love that guy.

Yes, there is a revolution going on about the proper or at least a rational sensible low-cost approach to investing. I and many others here and in every major newspaper, financial magazine and financial books have said, written or professed for years that the investing process with low-cost indexing with broad diversification worldwide is really, really simple.

 

This revolution somehow, some way will reach enough of our colleagues that they will start asking their high-cost advisers, their districts, and their unions questions. That's all it takes to carry this revolution into the k-12 classroom. But it's a lot more complicated. Our educational culture has not reached out yet because they have a pension, and our colleagues do not work to make a bundle of money, and love their students. Nothing wrong with our colleagues' values, except a cougar-type 403(b) system is stalking everywhere on K12 real estate who takes 100% advantage and ex ploits our colleagues' naivete about money, economics, fear of stock market, and caring for their students best educational interests. And the annuity industry and the broker dealer advisers know how to talk to our colleagues. And the industry is relentless for five decades.

 

We can intellectualize the investing process here, congratulate ourselves (and we should! I am very fortunate that I can do this myself and save a huge bundle on rip off costs). However, all of this good stuff that Barry in this podcast has said, and what we have said over and over for years has not reached the people who need it the most, and have been left out. Yes, our colleagues need to take responsibility, and I am hopeful that they will, but they need us to reach out to them. So far, there has been no outcry for reform.

 

My goodness, if a few hundred educational leaders (or a few hundred courageous colleagues) in this country listened to this podcast, this corrupt 403b system would start to unravel.

 

Here is an excerpt on what Barry says, and he just got started:

 

What would you say if I told you that everyday investors, people like you and me, are just throwing away billions and billions of dollars?

Is it some kind of a tax?

Kenneth FRENCH: It’s not something that just started today. It’s been going on for the last 20 or 30 years.

Just how stupid is this stupid thing?

Barry RITHOLTZ: It’s a tax on smart people who don’t realize their propensity for doing stupid things.

But in recent years, there has been a backlash. Some would even say it’s become a revolution.

Eugene FAMA: Basically, we were saying, “You’re charging people for stuff you can’t deliver.”

Today on Freakonomics Radio: the revolution in low-cost index investing — also known as Wall Street’s worst nightmare.

John BOGLE: It’s definitely a revolution.

RITHOLTZ: We are in the middle of the Copernican Revolution about the proper way to invest or at least the rational way to invest.

 


RITHOLTZ: There’s too much B.S. on Wall Street.

(Steve says there is way too much bull in the teacher's cafeteria's too with rip off TSA plans!!!!)

 

The real challenge to us is that we know all of this, and have known it for years well over a decade with thousands of posts here: HOW DO WE GET THIS IN FRONT OF OUR COLLEAGUES?

 

(Hint on what we can do now: share this discussion on your FB, Twitter and LinkedIn accounts. Our colleagues use these SM outlets).

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I've been on the record time and time again saying that K-12 employees are the victims of immoral financial predators. Having said that, why do we think K-12 employees are such quiet, passive victims?


Do pensions create a sense of complacency? I'm partially susceptible to that hypothesis when it is used to explain why so many K-12 employees rely solely on a pension. However, I'm less convinced when it is used to explain why the subset of K-12 employees who go beyond the pension are such easy prey.


Do K-12 employees simply not care about money as much as other people? According to the Federal Reserve, the median household income for 2015 was $56,516. Here in OCPS they pay teachers between $39,500-$72,600, which means a couple of teachers earn somewhere between 79k-145k. So I'm not convinced that being a teacher inherently means money is less important to you than the population at large.


Do K-12 employees simply not have the time? I see how many hours my wife works as a teacher, math coach, and assistant principal...but everybody works a ton of hours. I'd argue the summer break actually gives K-12 employees a significant edge over the rest of the population.


Is it possible that gender roles play a part in this? I've read summaries of studies that indicate women are less likely to "rock the boat" at work and they're better investors than men primarily because they initiate less activity. Maybe a little activity and confrontation is precisely what is needed in the K-12 403b/457b world? Maybe if there were some more men in the field, their unending (and often counterproductive) quest for over-performance and penchant for conflict would break down the 403b/457b walls? Maybe then women would be able to dominate with their "don't do something--just stand there" approach?


Is it a coincidence that the more male dominate University system isn't saddled with this issue? Is it a coincidence that this board seems to be disproportionately male? Is it a coincidence that even my wife, who agrees with and understands the cause, is doing less than I (a software engineer) am? Maybe this hypothesis is nonsense, but I've always felt like institutions who aren't representative of the population are guaranteed to have unnecessary dysfunction.

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I finally got a chance to listen to the pod. I generally liked it but I had a few critical thoughts...

  1. Nobody mentioned "The Mooch" was on the pod, come on people!
  2. I question the wisdom of bringing on a disingenuous, predatory individual to randomly start bashing the fiduciary rule when they had been discussing the benefits of passive investing only to immediately end discussion on the fiduciary rule. I think "The Mooch" was brought on for some kind of "celebrity" appeal rather than to add to the intellectual content/honesty of the pod.
  3. I don't know much about Barry Ritholtz, everything he said seemed reasonable, but I don't think he should have been allowed to present his 0.88% fee as if it were low. Assuming a 6% portfolio return, 3% inflation, and 30 year horizon that fee consumes 35.72% of real returns. Said another way, those fees represent 55.56% of the real profits you'd be allowed to keep. This is far from low cost.

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