401K- IRA Ripoff

by | Mar 14, 2015 | Archives

It’s a good idea to think twice about investment advice for your 401(k)  and especially I.R.A.


Click on chart to enlarge from www.finance.yahoo.com.  (1) The Wisdom Tree Europe Hedge Fund has dramatically outperformed, the DJI, S&P 500 and NASDAQ indexes.

Passive ETFs outperform nearly three fourths of actively managed funds.

A reader spotted a great 401 (k) idea in our report “Three Currency Patterns For 50% Profits or More”.

He sent this note: Gary, thanks for the information about investing in world-wide markets via ishare funds.  In your article there were 19 funds for developed and emerging countries.  If you invest $100 per fund per month that would be $22,800/yr which happens to almost equal the annual employee contribution to a 401k retirement plan for an individual over the age 55 ($23,000).

My 2015 strategy for my 401(k) will be to invest $300 per fund per quarter to accomplish cost averaging and to limit transaction costs.  I just wanted to share this, as I was attempting to formulate an investment plan for my 2015 contribution when you article appeared and became my answer.

This is a good strategy because one of the biggest risks for a pension can be a manager’s advice.  I.R.A investors generally get the worst advice of all.

A New York Times article “Americans Aren’t Saving Enough for Retirement, but One Change Could Help” (2)  shows how the investment industry is ripping off small investors.  The article states that more than half of all American households will not have enough retirement income to maintain the living standards they were accustomed to before retirement.

The article shows several ways how Wall Street is bleeding savers dry. The article shows several studies including one from the University of Toronto that found that investment advisers directed more of their clients’ money to funds that shared the upfront fees with them.  Returns of these funds were poor, compared with alternatives.

Here is an excerpt from the article: “It is superslimy,” noted Kent Smetters, an expert on finance at the University of Pennsylvania’s Wharton School.

The article shows that investors are getting questionable advice provided by managers of I.R.A.s.  It says (bolds are mine):  For all their flaws, 401(k) plans have a fiduciary responsibility to act in participants’ best interest.  Many managers of I.R.A.s, by contrast, are not legally bound to put their clients’ interests first.  They must offer “suitable” products — a much squishier standard.  “They can’t put your grandma in a heavy tech fund,” Mr. Smetters said. “But they could put her in a more expensive bond fund that pays them a huge commission.” 

It should be no surprise which of these Wall Street prefers. In a 2011 report, the Government Accountability Office of Congress said it found advisers who were paid $6,000 to $9,000 if clients rolled over savings from 401(k) plans to I.R.A.s.  I.R.A.s are a huge source of profit for Wall Street. Workers roll some $300 billion worth of 401(k) balances into I.R.A.s when they leave their jobs every year.

If you have a 401(k) and an investment adviser suggests a roll over, then think twice about the advice.

Regardless of your investment, I.R.A., 401(k) or other, consider passive ETFS.

ENR Asset Management has been recommending this ETF since the beginning of the year.  The March ENR Market Outlook continues to recommend the “Wisdom Tree Europe Hedged Equity Fund” and says:  As discussed in our January issue, an investor wants to be in Europe this year.  Don’t underestimate the powerful combination of ECB monetary stimulus, a low EURO exchange rate,  plunging oil prices and now, a big rise in foreign portfolio flows.  Buy on any weakness.  Wisdom Tree Europe Hedged Equity Fund  (NYSE-HEDJ) for 2015 but would advise waiting for a better entry price.  The Fund has been the recipient of massive net inflows this year. It is now heavily overbought short-term. We expect a correction to occur in Europe and in the United States this spring.   Use this as a buying opportunity if you don’t already hold HEDJ.

The Wisdom Tree Europe Hedged Equity Fund seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Europe Hedged Equity Index. Here are the fund’s 10 top holdings:

Company                                                      Symbol           % Assets
ANHEUSER-BUSCH INBEV                   AHBIF              7.06
Telefonica SA                                              TEFOF.BC        5.65
Daimler AG                                                  DDAIF.DE       4.77
UNILEVER NV CERT SHS                       UNLNF            4.76
Banco Santander SA                                    BCDRF.BC     4.44
Sanofi                                                             SNYNF.PA      4.44
Banco Bilbao Vizcaya Argentaria SA        BBVA.BC        4.15
Siemens AG                                                    SMAWF.DE   3.86
Bayer AG                                                         BAYZF.DE     3.50
L’Oreal SA                                                       LRLCF.PA     3.20

For more information, contact Thomas Fischer at Thomas@enrasset.com

Even if you have an IRA, an accumulation plan into good value global ETFs is one way to overcome the risk of investment managers’ advice that benefits them and not you.


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(1)  Yahoo chart finance.yahoo.com HEDJ

(2)  New York Times:  Americans Aren’t Saving Enough for Retirement, but One Change Could Help