Comment by conjecTech | Hacker News Reader

Comment by conjecTech | Hacker News Reader

This is fundamentally wrong. The statement assumes the whole of the management fees is being reinvested at 7%, when in reality it is being used by those who have jobs in the financial sector to pay their bills. That is quite literally like taking the price you pay for anything and multiplying it by (1.07)*50 (which is ~30) and claiming that is what they are actually charging you, since you could have otherwise invested that money at 7% and had that much in 50 years. This completely ignores the time value of money. It is equating the value of money today with the value of money fully invested for 50 years.

The more important lesson here is opportunity cost. If you are willing to go out and take the time to invest your money on your own, there are potentially some enormous benefits down the road, but you pay the cost in terms of time spent not working on your day job, not spending time with your kids, etc. I do a lot in rental housing, which has a fair return, but I can tell you right now, there are a lot of days I wish I just accepted whatever return I could get from someone else willing to manage my investments for me and focus on other things.

So... why not buy a Vanguard index fund, which is currently charging 0.07% for a management fee?

The difference between a 2% management fee and a 0.05% management fee from Vanguard's Total Stock Market Index... or 0.09% fee from SPY ETFs (+$7/trade from your typical broker).

Run the math, if you are paying 2% fees, you are getting straight up robbed. If your employer doesn't offer low-fee index funds, it would be worth your while to make sure that they get some onto your 401k portfolio.

> Run the math, if you are paying 2% fees, you are getting straight up robbed. If your employer doesn't offer low-fee index funds, it would be worth your while to make sure that they get some onto your 401k portfolio.

Worth my while, true, but maybe not worth theirs. More flexibility comes at a higher price from the 401k vendor, a crucial part of the scam here. Employers can offer "a 401k" as a benefit but might not view this as a tax-sheltering vehicle through profit sharing or discretionary matching--they could simply see it as yet another benefit expense. As with all employers offering benefits, some are more generous than others. Most employees don't know/care to pressure their employer to offer better investment options, or would prefer to have other benefits improved instead.

Hmm. Both Google and my fund options page at Vanguard list the Total Stock Market Index as having a 0.17% expense ratio:

https://www.google.com/finance?q=MUTF:VTSMX

Are we talking about different things?

He was probably talking about VTSAX. A different class of shares within the same fund, which has a $10,000 investment minimum.

Yeah, I was talking about VTSAX. VTSMX is a newer product that Vanguard offers. It has a $3000 minimum balance... but a higher expense ratio. If you can afford the $10,000 initial deposit, you should always go VTSAX over VTSMX.

Is VTSAX ever available as an option in a 401k plan?

Its not on my plan either :-p So don't feel bad about it. My plan is closer to a 0.19% expense ratio.

I hear of people in other jobs who do in fact have VTSAX in their 401k plan, but its obviously on a case-by-case basis, and highly depends on your employer's choices.

The salient point is that if there were no fees, then all of that money would be yours.

Whether Wall Street and/or its employees actually use the cash to "pay their bills" or invest over that same period to fully realize their portion of the return is irrelevant.

For that matter, Wall Street could (and probably would) invest that money elsewhere and may gain an even higher return. But, again, that's not the point. The point is that it's not in your pocket.

Yes, we would all be richer if everything was free, financial services included. If Vanguard can provide cheaper options, so be it, but in that case, they shouldn't need fallacious claims feeding on the public's current hatred of the financial industry to sell them.

I'm not sure who's arguing it should be free. Straw man?

In any event, there's nothing fallacious about pointing out the impact of those absurdly high fees on retirement savings over time. The money doesn't just evaporate from savings. It is specifically lost to those fees.

It's actually your argument regarding how the money might be used by Wall Street, etc., that is fallacious. It's a red herring.

And, of course they should feed on the public's hatred of the financial industry. People don't hate the financial industry because it consists of evil gnomes who steal their peanut butter while they sleep. They hate the industry because it attempts to financially rape them at every turn. So, that hatred is relevant here.

Good old free market competition.

>but I can tell you right now, there are a lot of days I wish I just accepted whatever return I could get from someone else willing to manage my investments for me and focus on other things.

If you think it's worth it to pay these fees, then so be it, but no need to use fallacious arguments to veil their impact.

>If you think it's worth it to pay these fees, then so be it, but no need to use fallacious arguments to veil their impact.

You've yet to really address any of my original statements. I never claimed that paying someone a percentage of your returns as a management fee means you receive less. I fundamentally disagreed with Vanguard insinuating that Wall Street received the equivalent of 2/3s of your potential portfolio value, which indeed is not the case. I don't know what fallacious arguments you are talking about.

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