This is some relatively widespread retirement knowledge, and is frequently referenced by the likes of r/personalfinance, r/investing, etc.
How does Guideline somehow out perform Vanguard who's been the king of this forever? Serious question.
Guideline is trying to be the Vanguard of 401(k) custodians.
The second hand info I have from a startup (that I worked at) negotiating with a 401(k) provider leads me to believe that are basically 2 common 401(k) setups in the industry.
In the least bad case, the company pays a bunch of money to the custodian in exchange for the custodian giving the employees access to good funds (vanguard institutional shares).
In the more bad case, the company pays the custodian nothing, and the employees only get access to funds that kick money back to the custodian. As you might be able to guess, these funds typically have quite high fees.
(My 401k is managed by Vanguard)
I think the important thing to understand about this space is that a custodian is required by law, and that their fees they take are (conceptually) separate from the fees your funds charge.
Sounds like the USA's Openednded mutual funds are even more dodgy than the uk equivalents (unit trusts)
employer matching was separate, you and the employer add money, then you choose what to do.
IMHO, 401k should go away and the deductible limits on IRA should be raised to compensate and let people do their own thing.
These 401k plan providers charge fees. Typically fairly substantial fees (like 1%) and typically the fees are well-hidden. By "well-hidden" I mean that it probably takes a knowledgeable researcher months to find out what the fees are -- I've certainly never known the fees for any plan I've ever had.
This startup purports to compete by charging fewer fees 401k plan provider fees.
Vanguard is customer-owned, while Guideline is not. That is an important distinction, regardless of current low fees.
The "stick it in a low cost tracker" model is fine, and in instances where you get shitty access at shitty fees makes excellent sense. However, Property/Reinsurance/etc are good sources of return which do not correlate as strongly to markets in general (Although property at the very tails tends to).
The Aussie super-fund stuff is interesting reading for this stuff as they manage to get the economies of scale required to make access to alternative betas vaguely affordable.
Avg. fund expense of 0.10%
0.03% custodial fee
Seems like a great choice for a business.
So if the employee has in his 401k:
- $20k, the equivalent fee is 0.41%
- $50k, the equivalent fee is 0.24%
- $120k, the equivalent fee is 0.18%
- $200k, the equivalent fee is 0.16%
- $1M, the equivalent fee is 0.136%
56 = cost to employer
Capital = how much the employer has in the 401k
0.13% = average fund fee
So if Capital = 200k
Percentage = [56/200k + 0.13%] = 0.028% + 0.13% = 0.16%
My guess is that they're focusing on new plans, not allowing rollover from previous plans and not allowing employees to keep the plan after they leave the company. In this situation they're able to have mostly savers with low or very low balances, and they charge on average higher fees than Vanguard and others.
Vanguard ETFs offer the same rates as the equivalent Admiral class shares, so services like Wealthfront use those. Wrapping Vanguard is a lot easier these days ;)
A 3-fund of VTSAX/VTIAX/VBTLX can average around 0.08% for the same underlying asset allocation as VFIFX at 0.16%. That's roughly double.
Basically, with component funds, you can always implement a target date glide path. You can't get the component funds usefully out of a target date.