5.4% is Average 401k Return

[scagnt83]

In their fight to extend the definition of Fiduciary Duty, the DOL/EBSA has come out with some interesting statistics.


From 98-07, the average 401k return was 5.4%.
The average IRA return was 4.5%.


So lets think about this for a second.

401k participants take on all of that risk, but on average do not fair any better than a long term CD or FA holder.....

And while you can reallocate and whatnot with a 401k, the frequency of people reallocating is much less than normal brokerage/managed accounts, meaning that emotions play a lesser part in 401k returns than others.

Most people should have jumped on FA rates when you could get 6%, they would have come out a lot better, and certainly would not have lost as much sleep at night!

 

[0b1kanobee]

Do you have an article or something that shows this? Not that I doubt you, just would like one to read. A link perhaps?

 

[CHUMPS FROM OXFORD]

Of course.... a few years ago or so, if you ran the same numbers, the results would be dramatically different.

As they say...past performance does not...

 

[scagnt83]

Second page of article, towards the end.
Congress to Borzi: Repropose fiduciary rule | BenefitsPro


You have to love the feds... "put the most clueless person in charge, and let them fu*k everything up"


The DOL was using those statistics to illustrate the difference in performance of IRAs vs. 401Ks, and was pointing to the Fiduciary Standards enacted on 401Ks as the reason for them performing better.

In reality, more retirees have IRAs vs. an actual 401k; and someone in retirement will have a less aggressive allocation than someone who is pre-retirement (which is most 401k participants).
So its complete bs!

Also, the fiduciary standard only applies to Plan Sponsors (ie: the owner of the company), not to the broker on the plan.

So her illustration of a gap between the two lacks any credibility in the real world.
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Of course.... a few years ago or so, if you ran the same numbers, the results would be dramatically different.

As they say...past performance does not...

The results will always be different when you change the parameters.

But studies of 30 and 40 year periods are not that much better usually.

 

[Franz Kafka]

401Ks are evil ... a necessary evil for those who want to defer taxes but evil nonetheless.

 

[BNTRS]

Chase, of all people, used to have a piece in their quarterly booklet they used to send me (until they finally caught on to the realization that I wasn't going to sell any of their mutual funds) that I always found humorous. It showed the intuitive idea behind risk vs. return, then showed the empirical data for the past 20 years. They were backwards from one another.

This is a common theme in modern portfolio theory, risk return is only weakly correlated and as you venture into midcap it starts to turn in the other direction. Small cap and smaller, forget about it.

 

[torrid]

Do you think more 401k plans offer "education" to participants than banks and other institutions offer to "IRA holders"? In the article they make that blanket statement but it does not say where they got that data from... how many plans and IRAs were reviewed. It only gives the time period 1998 to 2007. And just says it "estimates"... would be nice to see the methodology behind those calculations.

 

[bobson]

I would assume those with 401Ks tend to leave the money alone and not play in the market. That is why they do as well as they do?

 

[ranchondo]

What happens to my tax deffered 401(k) when taxes go up and social security is gone? Now what? Like anything if all of your eggs are in the 401(k) basket you are in trouble.

 

[padthaiforlunch]

when taxes go up and social security is gone?

Can't see either happening.