Quoted from “Americans
Aren’t Saving Enough for Retirement, but One Change Could Help” by Eduardo
Porter in The New York Times: March 3,
2015
“Everybody’s big focus is that we have to save more,”
said John C. Bogle, founder and
former chief executive of Vanguard, the investment management colossus. “A
greater part of the problem is the failure of investors to earn their fair
share of market returns.” His observation suggests a different policy
prescription: shoring up Americans’ retirement requires, first of all, aligning
the interests of investment advisers and their clients. A research paper by Mr.
Bogle published in Financial Analysts
Journal makes the case. Actively managed mutual
funds, in which many workers invest their retirement savings, are
enormously costly. First, there is the expense ratio — about 1.12 percent of
assets for the average large capitalization blend fund. Then there are
transaction costs and distribution costs. Active funds also pay a penalty for
keeping a share of their assets in low-yielding cash. Altogether, costs add up
to 2.27 percent per year, Mr. Bogle estimates. By contrast, a passive index
fund, like Vanguard’s Total Stock Market Index Fund, costs merely 0.06 percent
a year in all. Of course, Mr. Bogle has a horse in the race. He founded the
Vanguard Group. He invented the first index fund for the public. His case is
powerful, nonetheless.
“Assuming an annual market return of 7 percent, he
says, a 30-year-old worker who made $30,000 a year and received a 3 percent
annual raise could retire at age 70 with $927,000 in the pot by saving 10
percent of her wages every year in a passive index fund. (Such a nest egg, at
the standard withdrawal rate of 4 percent, would generate an inflation-adjusted
$37,000 a year more or less indefinitely.) If she put it in a typical actively
managed fund, she would end up with only $561,000.” Read the details at: http://www.nytimes.com/2015/03/04/business/americans-arent-saving-enough-for-retirement-but-one-change-could-help.html?_r=0
No comments:
Post a Comment