401k & 403b Plans, Failing The Participant

401k Plans & 403b Plans, Failing The Participant

     by: Brendan Magee

Most people realize that as far as your retirement is concerned, you are on your own. Social Security currently covers maybe 40% of your working income if your lucky. You, and you alone, will be the  left to take care of the remaining 60%. Hence, the 401k plan or 403b plan grows in their importance to the American worker. 

In retirement, the American worker's financial security will depend on how well they have invested in their retirement plan. At the moment, the workers are losing that battle in a big way. Dalbar's Inc. runs an annual report on how well or poorly investors are doing. Over the last 20 years, the average stock mutual fund investor's annualized return was 5.02% vs U.S. Large Company Stocks which did 9.22%. Bond investors did even worse. The Barclay's Bond Index did an annualized 5.74% vs the average bond investor who did a measly 0.71%. 

The task gets even harder when the investments being provided to 401k and 403b plan participants are universally substandard. It also doesn't help when that lack of good investment choices are brought to the attention of the plan sponsors and it falls on  deaf ears. The sponsors in smaller companies could be the owner for the company and in bigger organizations they could have a separate department handling the running of the retirement plan.

I had two such frustrating experiences recently. The first, occurred when an employee at a school district came to me with concerns about the returns on her 403b account.  In 2014 on an account which had an $8,000 balance, her return was just $80 which is a return of just .000875%. By comparison, U.S. Large Company Stocks did an annualized 13.69%. This young lady was woefully falling behind the rising cost of living.  The worst part of it was that the other investment options in the plan hadn't performed all that much better than the investment she was in. 

When she found better investment options than her plan offered and asked her school district's business manager to add her preferred investments to the plan,  he told her to just use one of the other investment options already in the plan. In other words I have no clue about the school district's retirement plan and your concerns are of no importance to me. So frustrating!

The second situation occurred when a 401k plan participant came to me and wanted some help investing in her company's new 401k plan. The company was offering mainly target dated funds where the participant selects options that are designed around when you feel you will retire. There are various options where portfolios are specifically allocated for people retiring in 30 years, 20 years, 10, 5. etc.

When we looked at the various portfolios, the participants money would only be diversified amongst four different investments with any where from 40% to 60% going into U.S. Large Company Stocks. Still feeling the effects of 2008 where U.S. Large Company Stocks dropped by almost 40 percent, the participant wasn't feeling secure with her investment options. 

So here we were in a plan that was fundamentally flawed. With only four asset classes represented in the portfolio and being overly concentrated in U.S. Large Company Stocks there was a lot to be concerned about. We arranged a meeting with the person in charge of retirement plan benefits for the plan and showed him that as it was the plan would create a situation where the participants would be taking way more risk for the expected rate of return for each portfolio being offered. We also show that in some cases the participants would be out hundreds of thousands of dollars in expected rate of return as a result of the lack of diversification in the plan's portfolios.  It was a pretty much cut and dried analysis placed before the benefits manager. 

His response was there were administrative issues that required them to stay with their current plan and no changes would be made to the plan for the foreseeable future. In other words, I do not want to add to my work load no matter how much the participant's financial security is being compromised. 

The truly sad part is that these are just two people amongst millions who have had their eyes opened to how bad their company's 401k/403b plans are. There are millions who have no idea that they are pouring money into plans that will only make it harder and harder to afford retirement, and that the plan sponsors are not interested in solving their problems.

So what's a 401k or 403b plan participant to do? Not participate? Get further behind in the race to build up a sufficient nest egg? Neither of those options are optimal. Most likely, you continue to participate in a bad retirement plan. In most cases the participant is left completely in the dark as to how substandard their retirement plan truly is. The realization only comes when retirement approaches  and they realize they do not have nearly as much money as they needed.

 As in the words of one of the plan sponsors I met with "We are not eager for our employees to find out we have a bad plan." 

The only winner in this is the investment companies. They are brought in to invest people's money and are left unfettered to collect their fees and build huge profits from commissions. The participant doesn't win because it becomes more difficult to impossible to save enough money to retire. The company doesn't win because they are paying for the administration of a substandard plan that none of their employees can feel good about. The solution will only come when the sponsor is bothered enough by wasting money on bad plans. When that comes, your guess is as good as mine.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. with questions or comments e-mail brendan@coachgee.com or call 610-446-4322.

The Questions Not Asked, The Decisions You Don't Get To Make & The Toll They Take On Investors

Questions Not Asked,  Decisions Not Made, 

& The Toll They Take On Investors

                              by: Brendan Magee

Last week, I was having a conversation with a very nice man during which I asked what he did for a living. He informed me he was on his second career. He retired a view years back after the company he worked for downsized the work force and he wound up as one of the casualties. Being close to retirement, he and his wife decided they had enough money to last the rest of their lives and it was time to start enjoying their lives.

Things started out o.k., but along with 2008 and the company's downsizing came the stock market crash. In a bit of a panic, Tom called his financial adviser and told him he wanted his money out of the market. Despite his adviser's advice to stay the course and the penalty that Tom would have to pay, he went with his gut and got his money out of the market and went on his merry way, which didn't prove to be as merry as he thought it was going to be. With the significant loss of his investments, his finances were not going to allow him to stay retired. He had to go back to work. 

My heart sank as he told me his story. Nobody likes to hear about someone struggling and realizing that their life's work won't be enough to fulfill on their hopes and dreams. 

Honestly,  I do not know the details of Tom's finances. I don't know how he had invested his money nor have I ever been privy to the meetings he had with his adviser when the money was first invested or withdrawn from his investment. The one thing I am taking notice of is that Tom's behavior isn't necessarily consistent with the rules for investing, buy low/sell high. So my mind and the questions I asked Tom went back to when he was first deciding how or where to invest his money. I was wondering if he was prepared to live with a downturn in the market or if he know how volatile his investments were. Were his expectations properly aligned with what he invested in?

So I asked him when he first started, did he get asked if he could come up with a mathematical measurement for how diversified his portfolio was? He said, "No, I was never asked questions like that." With that I surmised that Tom, like a lot of investors, made a decision without being able to fully answer and decide on one of the most fundamental questions anyone could be asked about investing and their financial security. Now he is paying the price and quite frankly is still in the dark as to why things have gone so wrong. 

Diversification is the cornerstone upon which all successful investing rests on and Tom was never given the opportunity answer this question. He was/is in the dark and not fully able to make the proper decision for him. I will lay odds he never got to fully answer questions about risk or cost either. 


To right this wrong and for investors not to find themselves in the same boat, more attention has to be given to the questions that need to be asked. The right questions are going to show investors what they aren't seeing and whether or not they are making decisions based on facts or dangerous assumptions.   

How does the stock market really work? Plus,Where do returns truly come from? These would be a just a couple additional questions that need to be answered as well.  The results Tom and his wife have to live with now most likely are not a coincidence. Nor would they be for any investor who wasn't given the opportunity to be asked the necessary questions and make the decisions that are most appropriate to their situation. 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments e-mail brendan@coachgee.com or call 610-446-4322.

Marketing Fee or Commission: It's Money Coming Out Of Investor's Pocket

Marketing Fee or Commission: 

It's Money Coming Out Of Investor's Pocket

                                           by: Brendan Magee

I was listening to an investment radio show the other day and the hosts wanted to make it very clear to the audience that they do not sell securities. They didn't and won't sell stocks, bonds or mutual funds. They were promoting "Crash Proof" vehicles as they call them. According to them the stock market was way to risky to have your money there. 

In promoting their vehicles, as they called them,they were saying that the companies they use to crash proof people's money didn't pay them a commission.Rather, they paid their firm a marketing fee. The benefit was that 100% of the client's money gets invested right away. All the more reason an investor should do business with them.

First, let's be clear. It shouldn't make any difference how a firm gets paid if what they are doing provides value to the public. Call it whatever you want. In this case, the vehicles are insurance products. They are annuities. Annuities come in a variety of products. There are fixed annuities, indexed annuities, and variable annuities. Indexed annuities are the big thing now as they promote that investors in these products have their money grow when the stock market goes up and they do not go down should the market go down. In essence they are crash proof. 

As far as the producer or agent is concerned they are golden because the commission on deposits into these accounts range any where between seven to twelve percent. So if the investor deposits $100,000 into one of these products their commission ranges any where between $7,000 to $12,000, not a bad pay day. If you look at the contract of these products the commission or marketing fee is referred to as deferred compensation and it drops over the a specific period of time.

So everyone wins under this scenario. The investor has their money in a safe investment, and the producer gets paid handsomely. But, what about the insurance company? Aren't they out on a limb? What if the investor decides they don't like the investment for some reason? What if circumstances dictate they need their money back? What if they discover a better investment? The insurance company just gave the producer $7,000. No problem they'll just ask for the commission/marketing fee back, and the producer will happily give back the $7,000, right? Wrong!

No way in #### is the producer giving back the $7,000! They have mortgage payments to make and college tuition to pay for. That money is spoken for. The insurance company has put themselves way out on a limb here, right? Wrong! They are not that stupid. You ask for your money back. The producer isn't going to give back their commission/ marketing fee. Where will the insurance company go to get their money back? Answer? You. 

Deferred compensation,as mentioned above, means that their is a penalty assessed against the money you deposited into your annuity. Let's say the commission/marketing fee was seven percent. The penalty, if you withdraw your money over designated period of time, starts out at seven percent. You get your $100,000 back in this case minus the $7,000 they paid the producer. Now the penalty goes down over a designated period of time,but you won't get your money back before the penalty is assessed  Plus, you are going to pay income tax on the money you take out of the contract if the money was after-tax. 

So yeah, your money gets deposited right away, but you are not being given a free lunch. Your money needs to stay in that vehicle/annuity for a specified period of time or you will pay a hefty penalty. The announcer didn't mention that on her show. She also didn't mention that the penalty is paid by you. 

Like just about everything else, it's what's not being said that is the most important thing an investor needs to hear. 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments go to www.coachgee.com or call 610-446-4322.

Investors, Do You Know The Rules & Can You Verify They Are Being Followed?

Investor's, Would You Know If The Rules For Successful Investing 

Were Being Followed Or Violated?

                                          By: Brendan Magee

The other day a client of mine asked me for some help with investing in her company's 403b plan, a nonprofit company's version of a 401k plan. She wanted some assurances that she was making the right choices from the list of funds available. 

We sat down with the guide book for her plan which went into not only the investment options, but also participation rules. For example, there was a lot information on when and how money money could be accessed with or without penalty, when changes could be made,etc. The booklet was about 150 long.

As we made our way through the investment options and how much she was going to contribute to the plan, I noticed something pretty significant was missing from all the information we had. There was nothing that clued Joan in on the rules she needed to follow in order to make sure she was going to be successful and achieve  financial security with her retirement money. 

There was also nothing given to her that would enable her to verify that the rules were being followed or violated. After signing up and contributing to the plan, the success she wanted to achieve was totally out of her hands. She was at the mercy of the people who would now be managing her money. People she never had or probably ever would have the chance to meet.

As we discussed what was missing, Joan was not feeling as confident as she would have preferred. She said it would be nice to know what the rules were before she made her investment selections so she would be able to discern which investment companies were following the rules and which ones weren't. She didn't want to find out five, ten, or fifteen years down the road she was being taken advantage of. 

Fortunately, we took our time and went over the rules for successful investing and found a few investments within the plan that she felt good about. We also set up a system to measure whether or not the rules were being followed and the plan was being successful or not.

The question I asked and Joan was wondering about was, "With all the information being supplied to investors, be it in a 401k plan, a 403b plan, or personal brokerage accounts, how come the rules for successful investing are not the first bit of information given to investors? Why isn't it listed any where in the information they are providing investors?"

So the $64,000 questions are, Do you know what the academically proven, empirically proven rules are for successful investing? Do you have the ability to verify that the rules are being followed or violated? If you cannot answer these questions with a 100% yes, give me a call or shoot me an e-mail.

P.S. If you do know the rules, get in touch and let me kow how you came across them and how you verify they are being followed day-in-day-out.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments go to www.Coachgee.com or call 610-446-4322.

The Real Reason Why Tom Brady and Your Mutual Fund Can't Stay On Top

Tom Brady and Your Fund Can't Stay On Top

by: Brendan Magee

All I have heard on the news lately is the punishment that has been handed down to Tom Brady and the New England Patriots.  Ironically, his suspension ends when his team plays the Indianapolis Colts, the team that reported that the Patriots were deflating the balls in last year's playoff game. 

This is where our investing lesson begins. The Patriots have won four Super Bowls. In each of those games the other team lost, 2004 still hurts. Certainly, the Patriots are a great team with tremendous athletes.A somewhat deflated football couldn't account for a decade worth of great football, or could it? 

The same could be said for every team in the National Football League. Very of the games are complete blowouts. They usually come down to the final two minutes of the game to decide the winner. Every team spends hours of preparation looking for that little edge to put them over the top. 

Now let's just say a deflated football or filming the other teams practices gave New England the edge they needed. Pro football is a pretty close knit fraternity and the players and coaches move from team to team each year. New England's secrets aren't going to stay a secret for long. Other teams want to win championships and enjoy all the perks that come from winning football games. 

If they realized that New England has gained a competitive edge, they can't just sit back and do nothing. Otherwise, New Engalnd will win all the time and the rest of the teams will be left to settle for second place. So the Colts report New England deflating the football or the Eagles report to the league offices New England filming their practices and stealing their hand signals. The edge is gone and New England falls back to the pack a little bit. They do not stay on top. 

The same thing happens with mutual funds. A fund has a record year. It's performance has far and away outperformed the pack. That fund manager is sought out for television appearances, covers of magazines, makes the speaking circuit and is paid thousands for his or her insights, gets offers to write books, etc. 
The rest of the fund managers don't get any of these perks. They are left to answer why their fund didn't perform as well as the champion. 

Let's say the top fund manger's performance came from tech stocks. Stocks the other fund managers didn't pay too much attention to. They have two choices, stay put and allow the top performing fund to maintain their competitive advantage or start investing in those same top performing tech stocks. How could they explain another year of under performance? How can they risk their jobs? Answer, they don't. They invest in those same tech stocks and the competitive edge is now gone. The champ is now one of the heard. 

Just like the N.F.L. the mutual fund industry is very competitive and is played by people who have a tremendous amount of ability. No one gets into that industry to settle for second place. They are not going to allow the other teams to maintain a competitive advantage for long.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments, go to www.Coachgee.com or call 610-446-4322.

So What If You Beleive An Economic Crisis Is Looming

So What If You Believe An Economic Crisis Is Looming!

                                            by: Brendan Magee

I was watching a commercial promoting a "Crash-Proof Retirement" seminar. The commercial showed the seminar director asking attendees at a previous seminar for a show of hands asking,  How many in the audience believed an economic crisis, the kind that we saw in 2008 was looming on the horizon? I'm not sure I got the question word for word, but I got the gist of the question. 

The presenter pointed out that just about everyone in the audience had their hands up. So there was a lot of angst in the room about the economy and what that meant for money they had in the stock market.  

The point of the seminar was that the stock market was way to volatile for anyone, especially a senior citizen in retirement, to have their money in the stock market. What the presenter nor anyone in the audience failed to realize was their answer to that question doesn't matter one bit. The current level of the market takes into consideration everything that is knowable and predictable. It is only unknowable and unpredictable information that moves the market. There is information and data factored into the stock market that neither the presenter, the audience, me, you, etc. have a clue about.

So the premise of the seminar , is to not be too risky with your retirement nest egg, and senior citizens, middle aged people or a thirty something year old wants to be too risky with their money. Unfortunately, by merely asking the audience this question the presenter has put himself and the audience in the shoes of a gambler and speculator. They are in the position of trying to predict the future. No one can consistently do that. When you engage in that kind of behavior you will undoubtedly come out on the short end of the stick.

Since the presenter brings up 2008, let's go back there. In 2008 U.S. Large Company stock were down 36%. That was painful. Everyone was hitting the panic button. Capitalism as we knew it was on the verge of collapse if you believed the media. Take all your money out of the market and cut your losses was the advice Jim Cramer was giving. 

Now if investors followed that advice look at what they missed out on since 2009 until today:

U.S. Large Company Stocks up 110.81%

U.S. Large Company Value Stocks up 196.62%

U.S. Micro Cap Stocks up 193.33%

International Value Stocks up 93.08%

International Small Value Stocks up 134.30%

Fixed Income by contrast is up 9.62%.

By far, in early 2009 one could have made a more believable case that an economic crisis was at hand. The point is this, do not base your investment decisions based on what you feel or believe is looming no matter how much data you have to support your beliefs. 

Your information and beliefs have already been factored into current stock market prices. Only unknowable and unpredictable information will move the market. If you do engage, based on those beliefs, you will be operating under the same set of circumstances as the guy or gal going into the casino, the race track or buying lottery tickets. You are gambling and speculating, and you will lose. 

You are operating under the delusion that you know how six billion people around the world will react to news and events that have not even happened yet. Not the side to be on. 

Please know that when investing in stocks or any securities there is a risk of loss and that the returns used in this blog are in no way guaranteed. Please consult your professional before making any investment decisions. Past performance is not a guarantee in any way of future performance. 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments go to www.Coachgee.com or call 610-446-4322

Ryan Howard & Investors Pay Dearly For Lack of Verification

Ryan Howard & Investors Pay Dearly 
From Lack of Verification!

by: Brendan Magee

There certainly are far worse things in life to happen to you then being the victim of theft, but realizing the people that are stealing from you are your mother, father and brother would have to be one of the worst things that could happen to anyone. Such was the nightmare that Ryan Howard woke up to in 2012 when he opened the financial books to a company he started as his career in baseball started to take off back in 2006. 

Being as busy as he was with the life as a professional baseball player he turned the day to day running of the business and its financial management to people he felt he could trust implicitly, his family.  In openning up the books he comes to find out his initial $8 million dollar investment in the business and the money he was paying his family to provide for his financial future was being treated more as their personal piggy bank then his. 

He found out his Mom, the company's financial officer paid out over $2.7 million to family members for services that were never rendered. All this comes to head in series of lawsuits and counter lawsuits back and forth between family members where the lawsuits are eventually settled out of court. In other words, it cost Ryan Howard more money to have the financial mess go away. The emotional and family scars can't be handled as conveniently. Going on blind confidence just didn't cut it.

A lot of this turmoil could have been avoided if, from the beginning, Ryan had a system in place to verify that the jobs assigned to his family members and the money being spent were being done as agreed upon.

Investors often times suffer unneccessarily because they assume their money is being handled as it should. Just like Ryan, they are doing business with people they trust. They don't follow through or see the need to verify that what is supposed to be happening with their money actually is. 

For example, a couple I met with a few weeks ago. They have their money in a life cycle fund promoted by many of the mutual fund companies. Basically, the investor picks a year in which they feel they are going to retire. The mutual fund will diversify accordingly and as the date of retirement approaches the diversification will be adjusted so that less money is in stocks and more is moved to bonds and cash. So the investor walks away after depositing their money in this fund feeling they are diversified. The mutual fund company said that that was what they were going to do so why doubt a big reputable company that everyone has heard of, right?

So in our coaching session we look at the fund and how it has diversified this couple's money. It is allocated amongst three different kinds of investments: 60% in U.S. Large Company Stocks, 30% in International Stocks, 6% in Bonds, and 3% in Cash. With this discovery Jim says "That's not diversified." Worst of all he finds out that the majority of his money is in an investment that has experienced a 40% loss twice in the last 15 years. He's taking on a lot more risk than he had been aware of or would have agreed to. Ouch! He's not a baseball player earning millions of dollars a year. This is serious money that can't be played with.

Like Ryan Howard, Jim and his wife, would have been better served with an awareness of what they wanted done and the ability to verify that their wishes would be carried out. This awareness only comes when the right questions are asked from the beginning. "How do I measure diversification/", and "How do I verify that the allocation of my portfolio will be carried out over a lifetime of investing?" These are the questions that every investor needs to ask. The price of not asking the right questions and having the ability to verify how your money is being handled is way higher than Ryan Howard or any investor knows they're going to pay. 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail brendan@coachgee.com.