PE is the ACTUAL cause of the middle class being gutted. As Evans pointed out, they’ve increased costs and lowered quality in Real Estate and service markets , also add in youth sports. All the things that make up a typical Americans life we are paying exorbitant prices for and getting crap for it.
An example:
In youth hockey, teams need rinks. PE firms buy up the rinks, jack up prices and then barely clean the bathrooms let alone make any necessary repairs or improvements. They’ve also now bought up the video streaming services for not just their rinks but others that make up a league. So you can pay $300/yr for their service, but if your kid plays in a particular league, it’s an extra $100/yr ($400 total) so 2x the cost of the former streaming service. And in a lot of instances, same crappy cameras and bad internet signal as before.
If Trump wants to solve the gutting of the middle class, maybe he should start with these assholes that are making our lives more and more expensive.
I can't hear or read about PE firms and not immediately think of the scene in Goodfellas where they leverage ownership of that nightclub out from under the owner, fleece his inventory and at cost goods by moving them out the back door to sell on the street (saddling the cost on the business), and then finally torch the place to collect the insurance money when the debt is unsustainable.
These guys are literally the hidden force all Americans feel is out there robbing them, but unable to accurately identify because they are so under reported.
Great observation Mark.---Subscription journalism is--(thank you Eric/RACKET)--capable of creating the healthy human national conversation our Republic deserves.----Focus on curing the disease and the symptoms will disappear.
This has been a huge gripe from Matt over the years. Basically our 4th estate stopped doing it's job. And it's sad that we now effectively need independant actors to start filling in. I have no issues subscribing to a couple of them, but it's also a bit naive to think that ~5 reporters (hypothetical based on subscribing to just a few subs) can replace the vast network of local and national newspapers that have been eroded over the past 30 years.
But, yes, I'm 100% appreciative of Racket (and in particular these financial reports from Eric) for providing solid news that is just simply missing from our national discourse.
Unfortunately, having established the infrastructure such as substack to enable the distribution of these voices, has also enabled the counterweight of the Robert Reichs, Paul Krugmans, and Heather Cox Richardsons of the world to cherry pick data to snow the literate-leaning dumbmasses out there more regularly.
In youth sports, "club teams" are probably a worse offender by far. "Your kid has talent" enough to drive all over the state all the time spending more and more money in that sports black hole.
Ever notice how the events become all encompassing and your social group becomes narrowed, and free time gets sucked up by things you are paying more for?
Yes. Unless you've been through it, you don't know any better so its on us to teach the parents coming up behind us. It's killing the kids development too - we know so much more about how kids actually develop as athletes and it doesn't involve more car time, another hotel stay or a tournament of 5 games in a weekend.
I saw a kid who was a lousy soccer goalie in 7th grade go to Ireland because some guy said he had talent. Cost the parents $7,500. When I asked what their goal was they said free college. Since my son was in college and on a rare lacrosse scholarship I asked if they knew the odds. They lost interest in learning more. That’s how “club” teams sell.
Many sports teams and karate studios are run ethically. But when I was a kid the karate teacher came up and told me and another kid near the water fountain during a break that we were the ones he had his eye on, that we had real talent and the sky was the limit for us.
I had seen the other kid's technique and knew him pretty well. He was not headed for the stars in any endeavor, so I pretty quickly reasoned that my upper bound might not be as high as reported either, that there was probably another incentive at work here, and I lost interest entirely.
Amazed how much money parents spend on this with the hope that their son or daughter will get an athletic scholarship to a quality university. Would have been better off saving the money and effort and plowing all that expense into a good quality college fund, etc.
Trump wanting to solve the gutting of the middle class? Gutting the middle and working classes and screwing over the poor even further is the number-one goal of his administration.
I disagree. A lot of his policies and actions have been solid decisions for the financial health of this country which will be beneficial to all in the long run.
Donald Trump has only two goals in life: enriching himself and glorifying the Trump name and will try any type of scam to achieve those goals. He's enraptured by the winners who have money or power and despises the rest of us, the losers, who don't. His second administration has quickly deregulated one industry after another, initiating a huge upward transfer of wealth with himself a major beneficiary. Check out the August 18 issue of The New Yorker for a blow by blow account of how he's profiting off his presidency.
I often share the old JFK line--who--when a reporter observed that "..where there's smoke there's fire.." replied "..possibly..or somebody has a smoke making machine.."
It's hard to get a read on Trump the media manipulator vs. Trump the President because--the average American is forced to view political/financial reality through an electronic smokescreen. It's clear that subscription journalism is still in its infancy--the possibilities for a new truth/fact based national conversation abound.
This actually is incorrect - real wage gains for the lowest wage earners have been impressive under both of Trump's terms. This deal I am not too sure about - but economically as far as wages, Trump is the working class savior.
Trump at least THINKS about normal people before acting. Bush/Obama/etc. didn't care, they did as their masters bid them to do. But Trump can keep some traditional Republican support with some of his actions (e.g., trillion $ tax cuts for rich people, exposing 401(k) money to rapacious vultures) that may give him more breathing room to try to fix the underlying problems.
I'm not sure his current strategies for the middle class are working, but at least he's giving them lip service.
Two things. First, companies themselves can screen whether PE investments are allowed to be 401K offered employees. Second, employees themselves can conduct due diligence on fees in those 401K PE offerings. That’s two guardrails. Does your company hate you? Do you hate yourself? If yes, go ahead and invest your 401K in high fee PE offerings. Stupid is as stupid does.
I agree 100%. People need to do their research and they will be ok instead of blaming everybody else. I make my own decisions how I invest my 401K and it’s my responsibility to do due diligence. I wish I had the same ability to invest all the money I paid for so many years into Social Security the way I want and keep it, I am sure I would be much better off now.
US government needs your and mine and every other young person’s FICA tax to keep the Ponzi scheme rolling for the financially illiterate and other low intelligent fellow citizens. Personally I’d rather have this system than one with even more homeless and destitute. That said, it is your $$ and point taken.
I guess this is one way to support people who made bad decisions or faces bad circumstances but there are other type of safety nets we should be considering.
SS is a safety net I’m semi-okay with because to qualify for it most have to work. The bar is so low now that some people don’t even work anymore (and collect Medicaid instead). That is the part of the system I don’t like. To get Medicaid I think you should either have to work minimal hours or if you can’t find job, put in volunteer hours. There can be exceptions to this, but they ought to be well defined (like having severe autism).
True. I've never lost money in a 401K with properly configured options. Did lose money on a number of investment options but that proves they weren't properly configured.
(Matt Stoller/BIG reports regularly on these types of financial issues. )
Many of us--definitely myself--are in the same boat Matt T. found himself in during the '08 crash--didn't speak the lingo--didn't understand the grift. My view: Headline crisis to crisis--no solutions forthcoming distraction to create anxious certainty and fear while the--it seems now obvious--the rigged game hums along undisturbed. Subscription journalism is a two way street.
I work in IT, and all of our customers that end up selling to PE are gone within a couple of years. I always hated Trump, but man, now I really hate the man. He's not intelligent. Anybody at this point that thinks he cares about us anymore than the Octopus Deep State does? Brain Dead. Clue... Nobody cares about you!!! The rich and powerful want you dead!
Just don’t invest in high fee PE ETF offered. In fact, if it’s offered through your 401K ask your HR Benefits Director why it’s there in the first place. Take some responsibility for yourself and quiet the hate? If you are so gullible to invest in high fee 401K offerings then that is on you.
I think Social Security is still around because there are so many financially stupid fellow citizens. These people need it because they need the government to take care of them cradle to grave. I’ve always worked like SS won’t even be available when I retire (and maybe it won’t)
Yes it’s a disaster - if you fall for the false promise and invest. PE returns have been lousy the last decade, so they need fresh suckers, er, investors. DON’T BUY THESE FUNDS IF THEY GET INTO YOUR 401K!
Bravo to Eric Salzman for blowing the whistle on this.
Matt is spot on re PE getting into 401k's. PE deals have underperformed for years, as too much money is already chasing too few deals. PE deals used to be a boutique industry, which was restricted to a very small subset of investors. At that time, there were some tremendous returns being generated. Those returns drove more and more funds wanting access to these deals, which drove returns down over time. Now the good deals with high returns are very few and far between, and adding 401k's to the chase will continue to drive returns down.
Why is there no national conversation demanding a return of legislation like Glass-Steagall? --- The DNC/Brussels/CCP Davos crowd isn't building anything. Their business model --(pray for the the French and English people)--seems to be re-colonization of our Republic--the destruction of the nation state and the right to gouge and loot every dime hard working Americans make. They offer no prosperous human future. Only the LIE and a sterile managerial/surveillance totalitarianism that reduces citizenship and civilization to a one size fits all serfdom. (30 people a day are being arrested in England for thought and speech crimes.)
This Salzman report seems to indicate a further loosening of the wolves. Why? Bright shiny objects for the Wall Street crowd and a scorched earth American landscape for We the People?
This is the kind of limbo experienced in nightmares. Terrible things are underway and the dreamer is frozen witness to the horror unable to wake up.--Isn't it time?
The thing is, nobody is saying you have to. I refuse to believe PE has such clout that your 401(k) will stop having a decent sp500 fund on the menu.
In general, if there is a thing that A wants to sell and B wants to buy at a mutually agreeable price, and no C who is harmed by the transaction, there are *very* few circumstances where I’m inclined to think the government has any business saying no.
If Eric is right that “PE is going to have to really stick it to their new retail clients in the form of crummy deals” then they will not get a lot of business and all this pearl-clutching will have been just noise.
I wouldn’t invest even a tiny fraction of my retirement assets in PE and would certainly not encourage anyone else to either. But in the end I think Eric said it best in his last paragraph: “I understand discerning adults get to choose for themselves what they are investing in.”
This is exactly my point- they want people who don’t know any better - suckers - to sign up. And that’s a LOT of people. Enough will sign up as a sucker is born every second in this country. They won’t look at past performance or fees, just the name. “Goldman Sachs” or “KKR” attached to the name of a fund will be enough for them. And then Social Security is all they’ll have for retirement.
People can do a lot of stupid things. But if you want the government to protect all of them from all those things…well, there’s a pretty slippery slope from that to “you’ll own nothing and be happy.”
I’ve got only minor reservations about mandating various hoops to jump through. My Schwab account wouldn’t let me invest in options until I had a certain balance and read a bunch of information sheets, and even then I think I’m limited in how much of my portfolio I can do that with. (Maybe, if so I’ve never come near it.) I agree that PE should never be something you have to opt *out* of. But I can’t see that happening anyway; my biggest complaint about the various employer 401(k) plans I’ve had over the years was that the choices were *too* conservative; I’ve seen plans that didn’t even have a science&tech mutual fund.
I was ignorant about their move into the services markets until I gained first-hand experience earlier in the year. It's a real problem that will affect not only those who work for the companies but also those who use them.
"I've got a sneaking suspicion we're not going to like the the way this ends"
Between PE getting their hands on 401K funds, the craze of cryptocurrency, and a, uh, well-valued stock market, what could possible go wrong?
Private equity should have never existed in the first place. The whole purpose of financial markets is to help businesses grow and create value. PE never created any additional value; it simply lined the pockets of mediocrities like Mitt Romney, a man who was the perfect impersonation of an intelligent person. If you have an active 401K invest in index funds with very low expense ratios. It makes a huge difference on your returns over time.
Bingo. Private equity funds just buy up existing and bundle existing businesses but don’t they create new businesses. Funneling capital into PE diverts capital away from creating new ventures that grow the economy. This is vulture capitalism and the opposite of entrepreneurship.
My gut tells me, this is nothing more than enabling a way for super wealthy family investment groups and large pension funds to dump this toxic garbage onto gullible retail investors. My bet is, all the real money was made in private equity years ago and what is left is a lot of equity that hasn’t been marked to market in a long time and won’t be before it’s in retail investors hands.
Yes, this smells like the mortgage debacle to me. Wrap trash in a few 'goods' deals and push it out the door.
If they coupled this with transparency rules regarding fees, for everyone, clear listing of components in the deal. ETFs list their holdings, if not they actual number of shares they do list the % so you can see if they are weighted the way that seems right to you.
A little financial education in HS and when you open and account would help. Starting with "never invest in things you don't understand".
I hope Matt keeps us up to date on this. In no way do I claim to understand how all of our systems work. But at 67 years old, I have become pretty good at smelling fuckery. And so far what I am smelling is pure 100% fuckery. Hopefully I am wrong.
This just came across Bloomberg...when they start Squaring things the end is nigh
Other managers have found success. Accel-KKR Co. extended its ownership of isolved, a human-resources software firm, raising $1.9 billion for a second continuation vehicle. CapVest, meanwhile, is attempting to move Curium Pharma to a second continuation vehicle, and PAI Partners is looking to do the same with ice cream producer Froneri, the people said.
CapVest didn’t respond to a request for comment. PAI declined to comment.
Goldman has emerged as the lead investor in Accel-KKR’s CV-squared. It is also a lead investor in PAI’s CV-squared transactions, according to people with knowledge of the deals.
When PE is buying up all sort of businesses large and small, to the detriment of their employees, owners and the consuming public, one just has to think that something is rotten in Denmark. I do truly believe that Trump has the best interest of working and consuming Americans at heart so this needs to be revisited. PE's track record counsels extreme caution.
Unfortunately, even when I was in the business, only our best (high net worth, institutional) clients got to get the goodies. On a rare occasion regular joes could participate. I feel that Matt is probably correct, this could turn into a shit show “bubble” because Wall Street is notorious for packaging for the meager folks. My point, was that there are those that have the knowledge and stomach to participate and it’ll be nice to be able to. As always, we will have to see how it plays out. My feeling is, many of the investment firms will be guarded as to what folks can actually invest in, their own personal policies, because they know what this can lead to. I can understand Trumps rationale, it’s your money but…investing is not for the faint of heart
True, but as someone who manages a 401k program, these funds are more likely than not going to be poor performers over the life, whereas an index 500 fund with almost no fees will outperform it over the life of a person's investment period.
Now as to a glut of investment capital, we actually are getting into a more scarce capital environment - the Boomers are retiring and taking their investment money with them - so getting more capital wouldn't be terrible and might further ease pressure on interest rates.
I agree, but I’ve done better with individual stocks and at one point we were interested in purchasing an investment property but it was not permitted in our 401k at the time. Too bad, for us, as it would have been an excellent opportunity.
The PE company would have to set up a mutual fund or ETF to provide an investment option, probably created by a big trading house, or maybe by themselves, and then introduced as an investment option by the trading house acting as the 401k provider to businesses looking for that service for its employees.
The problem for them will be the fee declarations. Because they have to be there. These will be expensive funds, meaning they will have to generate big returns to overcome them. This will make them quite volatile and will scare away most of the risk averse crowd. If they can create a track record of strong returns, they will be purchased. If they can't, no one will choose them.
Retail always bails out the banks, government, societal fuck ups. Now PE will feed at the trough. But this time is a bit different as retail are on their knees with a vast majority of Americans living paycheck to paycheck and/or heavily indebted and/or have only $500 in savings.
In other words, raid ppl's last remnant of wealth and see what happens....
I actually have believed for some time that 401K funds are huge scams anyway. I'm 61. I don't have a 'retirement fund.' Why WOULD I? What purpose does it serve? It's a myth created by companies like Vanguard to encourage you to park your money in something that is mediocre at best.
I have used any excess funds I have to buy real estate. Not speculatively, just buy some parcels. I now own my commercial property that my business is on. I also own two agricultural properties and a private residence, while my husband owns the house we live in. All told, in less than 15 years, I have amassed close to 2 million dollars in value and spent less than a tenth of that.
People need to take charge of their own money and quit being lazy about it. Parking your money somewhere under someone else's control leaves you open to just such a thing.
To me, 401K are as bad as Private Equity....they are just sneakier about it.
Real Estate can be a very good opportunity and pleased to see you've done well - I assume this real estate can generate income for you as well.
Your take on 401k is pretty wrong however, especially if your employer matches your contribution. An immediate 50% return is not unusual - on every dollar you invest up to a certain amount. No investment has that guarantee. Not even real estate.
I disagree. Any 'investment' that I don't have control over is not really mine. Sure, you say there is this big immediate return....but that's not true, is it? Try using that money. You get hit with huge penalties. And then the 401K fees eat away at as well. Plus, the stock market is really kind of make believe and is subject to huge swings. It should NEVER be the bulk of the investments you have....and YET, people depend on their 401Ks to totally fund their retirement. It's ridiculous. If you want to have a stock account, just get your own. You don't need brokers anymore. I'm big on independence. 401Ks are NOT independence....they are always controlled by someone....and can be taken away or manipulated at any time because they are not under your control. I don't trust them. They are Social Security by another name....and look how that's turned out.
Now, in worst case scenario, real estate can also be fucked with....see Venezuala....but in that case, everything is taken so nobody wins, except the government.
For right now, right here, I think putting my money in real estate is the best possible scenario.......and also I plan to keep working. I would be bored to tears if I retired.....maybe I will work part time, but will always work.
It's a retirement account. It isn't meant to be grabbed whenever you want it. It is a leg to look at in your investing portfolio. Real Estate is generally a good place to put money, and I have done some which I will do quite nicely with, but it isn't very liquid, and if you need it in a down market then what? Like all investments it has its pluses and minuses. There are minimal fees in most 401ks mostly directed at loans. Some of the "fees" they are required to report are the fees inside of the mutual fund options which are there when you buy and for which you are reimbursed when you sell - but the DOL requires you to only discuss the front end. It's a stupid law.
Now, your 401k is yours. Tax law could change of course. But the account is yours. You can take it with you when you move on. You completely control the investment options - ours actually allows you to set up a self directed account with Schwab so you can buy just about anything. No one can take any of it.
A 50% immediate return doesn't take into account the general equity annual return of between 7-8%. That's on top of it. My 401ks have done pretty well, and as I moved jobs I have rolled them over into my own IRA which is worth quite a bit of money at this point, which I can grab whenever I want and just pay nominal income tax like any other income. Could the market crash? Sure. But at some point it is incumbent on me to then move into safer, less exposed investments.
Like you I am in my 60s with no desire to stop working. I'm still saving money through yet another 401k program - with investment returns averaging 14% (it's been a few good years!) on top of the initial 50%.
You have been brainwashed to believe you are neither smart enough or disciplined enough to save for retirement yourself. That's the big scam....'Hey dummy, we KNOW you gonna spend all your money if we let you, so let Big Daddy at Vanguard take care of your money.' I don't think that way. I am disciplined. BUT, if I want to invest in something big, I should be able to get my money whenever I want....but you are ONLY allowed to park that money certain places.....too confining.....too conformed. Nobody EVER got rich with a 401K. I get that it seems like some sort of security but these companies aren't managing them out of the goodness of their hearts....they are making bank....for doing nothing.....and what happens if one of them goes belly up? The land I bought is THERE....it's tangible. It's also a relatively liquid asset. To each his own. I purchased 25 acres in 2017 for $200,000.....it's now worth close to a million.....that's a tad better than 50%.
OK - I'm not brainwashed. I would consider us both somewhat financially sophisticated but if you just want to start calling someone names because you have an emotional aversion to a specific type of investment you don't like, and which just about every financial professional would say you are a bit nuts to say so, fine.
A 401k is part of a balanced portfolio of other assets, your home, other real estate, 401ks, private IRA's and other savings and investments. I think the hot investment thing now is fine art, go figure.
Land is not liquid, you might like to dispute that, but it is a classic non-liquid asset - it must be sold which takes time. Sometimes months, and with what you say you have sometimes longer. It's never quick. Of course you can get a bank to borrow against it at 9% if you really need it, but then again you can borrow against your 401k for a fair amount. And once you are 59 1/2 you can just take it. You also needed 200,000 to buy it. I'm glad you could get a million for it now. But most people don't have near that liquidity, and you and I both know that. With real estate you need money to make money. Normally saved up over time. Or a job with enough cash flow to handle payments. Now of course with Roth 401ks you do have a bit more flexibility. But it is meant to be a retirement account. I would never advocate putting more money into a 401k beyond the match unless you don't have anywhere else to put it. You take the free money.
Oh - and the stock market has never gone belly up. It has gone down - but the worst downturns were recovered within the year - usually 6 months - and if you have cash, provides an excellent opportunity to buy on the cheap while others panic because they needed the cash. If you needed the cash, could you wait 3 years to get it? Or would you have to sell it at say 350K? I'm a bit familiar with land deals. If it 25 acres outside a growing town you are in luck. Based on your appreciation estimate it must be. But what if your town denies permitting and zoning - is your land still worth a million? Yes, you see, like all investments, there is risk. You manage it as best you can.
For many many people, a 401k with a match is an excellent piece of an overall investment strategy. It requires little effort and you can buy the market pretty cheap, much cheaper than you can in an outside investment account. For those of us who prefer more hands on, we can take on the bigger opportunities.
Lois, many employers now offer Roth 401K in their plans which is gold standard retirement account. When you sell your property later in life, Uncle Sam will take his cut, and kick you up the tax bracket. When I take RMD’s from my Roth, I won’t feel that pinch. Smart 401K investors can also roll over pre (or post tax) 401K contributions/earnings to an In-Plan Roth Rollover (IPRR), which boosts Roth account even further. Most plans allow you to do this 2x per year. Please consult your CPA before doing so however, so you avoid jumping tax brackets. Earnings grow tax free in Roths. Roths didn’t show up until around 2010 so most Boomers didn’t catch on in their 401K’s. But Gen X and below, no excuse not to exploit this tremendous savings vehicle.
The Roth and 401K Roth are so powerful (tax protection during growth and when taking withdrawals) that I’m wondering if someday the government will no longer allow new accounts.
“When I take RMD’s from my Roth, I won’t feel that pinch.”
For two reasons: first, Roth withdrawals are tax free as long as you’ve had the Roth for five years and are of retirement age, and second, because Roths don’t even have RMDs!
Y'all can do whatever you want. BTW, I have had a Roth. I don't believe in money just sitting around doing nothing. I want to use it. Just because I'm in my 60s, doesn't mean I have given up on life. I love how people are just fighting me tooth and nail over this.
They seem very scammy to me......someone else supposedly 'taking care of your money.' I don't trust them, period. Like I said, they aren't doing this out of the goodness of their hearts. There's always a catch. And there are ways to sell property and not get hit with the big capital gains taxes as well.....and Trump is hopefully gonna make that even better. You pay tax on EVERYTHING....and if you think you are somehow getting out of the tax....well, Bless your lil heart. Plus, I work for myself, so how is my employer gonna match? Most people are too scared shitless to do anything for themselves....they want someone taking care of them. I don't trust other people to mind my money for me. You want to trust it, that's on you.....and now, along comes Private Equity and they are gonna rain on your parade......like I said, scammy.
Why do you think $ in a Roth or other investment vehicle just ‘sits around’ doing nothing? If you think that way, it’s you who are the ‘dummy’. The $ is invested in low fee Vanguard / Fidelity / Schwab index funds and compounds. Compounding is of enormous value. Feels like something may have occurred to you or a loved one to come across so strong against saving for retirement in IRA/Roth investment accounts? If you invest in high risk vehicles you might get snake-bit. These accounts are readily available to the ‘masses’. What’s not readily available is counseling on which investments to select. But not too difficult to self educate. Most folks don’t have large sums to invest in real estate (outside of their primary homes). If you are a sucker and invest in high fee PE funds in your 401K, that is indeed, scammy.
I am a dummy who thought that when I retire and start drawing on the 401k, the gains would be taxed like capital gains. Haha, I'm an idiot. So, the question is if I would have been better off just investing in the same damn thing as the 401k, paid the taxes only on the money I earned which I used to invest, yes and forgo the employer match; or investing on my own from the get go. As it is my wife and I are going to get slammed when RMD starts because she wants to live on as little as possible and keep the money in 401k instead of liberating it. Oh, and I have a fried who does as Lois says, he invests in real estate rental property and exclusively takes only gold plated renters so no dope dealers or party animals. He boasts all the time about how much money he has made. My wealth, on the other hand is completely fictional, it does not become real until I sell which will probably be when everyone else is trying to sell and there isn't enough money around to keep the price up. I just assume that I will get out of it basically what I invested in it, ultimate blackpiller that I am.
Nothing happened to me. I can think. I can open a Charles Schwab account and make my own money.....Why would I pay some company a percentage of my account, compounded over time, if I can do it myself.
I ALWAYS distrust when the government sets something up to 'take care' of us. You should too. NOTHING is as good as it's made out to be.
I don't like the whole idea that 401K is the ONLY smart thing to do. That makes me suspicious as hell. COVID has sensitized me to the whole, 'do this for your own good and trust us' bit.
Once again.....these companies that administer the funds....they aren't doing it for YOU.....they are doing it for THEM.....and they will sell you out in a minute if they are allowed too....oh, and some shit in DC will find a way to 'borrow' the money, just like they did with Soc Sec.
Hey, you do it your way, I'll do it mine. Chances are, we are both gonna be fine. I don't ever follow the herd, never have.
You can open a Roth at Schwab! That’s where mine is. And you can invest in anything that Schwab offers; I have both stocks and mutual funds and have occasionally even dabbled in options in a small way.
The *only* differences between a Schwab Roth and a normal Schwab brokerage account is that growth is tax-free and (of course) the government limits how much you can put in it directly. I do annual (taxable) conversions from my conventional IRA up to the tax-bracket break-even point. But there are no fees for the Roth in particular.
If it rubs you the wrong way, by all means give it a miss. But it sounds to me like you have some misconceptions that you might be happy to correct!
I don't want money I get penalized for spending before someone says I can. How many different ways do I have to say that? I have had a Roth. I'm totally fine without a retirement account, BTW. This is a relatively new phenomenon and it's like EVERYONE MUST HAVE RETIREMENT ACCOUNT. No, no we don't. Guess what? This will absolutely horrify you....at 61 yrs of age, I don't have health insurance either. I don't go for regular 'find something wrong with me' visits to a doctor that doesn't give a shit about me, just wants to put me on meds I don't need. I work out every morning before work and ride my horses on the weekend. I have pretty stout life insurance for my husband in case a horse kicks me in the head. I have a job, vet, that will allow me to work as long as I am able. I have money in the bank. I am not going to sit around and worry about how much I manage to put in the bank. Guess what? Whoever dies with the least left on the table WINS....it means we have lived our lives to the fullest and done whatever we wanted while ALIVE. I don't want to waste away in some gawdawful retirement home. I am not going to buy long term care insurance, just to be warehoused where a bunch of strangers come in and wipe my ass. If I get that bad off, I'll get on a bad horse and let that be my way out. Life is meant to lived. Over planning steals from your todays......COUNTING on the idea that you are guaranteed all the tomorrows...you are not. I'm living my tomorrows today. I don't ask anyone for anything. Oh, and I WOULD be able to live on my Soc Sec payments if needed. Because I worked my entire life, my payments are pretty generous, especially if I don't have any major debt.
I'm not getting a retirement account, period. I'm gonna keep on keepin on.
George Carlin gave the best advice to "regular" investors contemplating PE: "It's a big club, and you aren't in it." It has always been a "friends and family" sort of business, and the thought that thousands of anonymous nobodies will get cut in on the good stuff is just hilarious. And, yes, if money pours in there won't be enough deals to go around until some people concoct some slop to feed the hogs.
My libertarian side says people should be free to do what they want. But, to read the article, they already are free, the impediment is that bad acts might be punished in civil lawsuits. Removing the threat of suit against abusive practices is not libertarianism, it is The Grift. If investment managers have not invested in PE because of the threat of being sued in open court--- what does that tell you about how they view those products?
At minimum, plan sponsors should be absolutely forbidden from making PE (or any ETF or fund that includes more than a de minimis amount of PE) a default holding from which you have to affirmatively opt out. Any investment in PE in a tax-privileged retirement account should be only by affirmative, written direction by the beneficial owner of the account, after being fully informed of the potential pitfalls.
I have supported Trump since 2016, but I have to say that the grift and pay-to-play in this administration is getting real old, real fast. If only the Democrats weren't just as bad... sigh...
PE is and has been a underperforming asset for many years . Back in the day David Swensen Head of Yale endowment paved the way for PE to be considered a viable asset class. He was early and the field had few participants . The fees from PE are incredibly high , liquidity low , returns sub par and the list goes on . There are simply too many PE firms chasing too few deals . guilt also flows to the consultants who are part of this gravy train . Ai will end the discussion about risk return when there are enough data points to analyze and will make companies more efficient without the clever machinations of PE managers . The duration of PE funds can extend substantially beyond the pitch book , more fees to eat away at returns and Ltds have little ability or recourse . In addition there are publicly traded securities which Track PE performance . They cost investors 1/10 of the price and like any publicly traded you can buy and sell , rather than being locked in. There was a time that PE was a great investment but the golden goose has been turned into lukewarm mush . If someone is touting PE they have an economic stake .This is the tip of the iceberg of issues for investors to consider for this over hyped underperforming asset class . Look at how often One PE firm sells to another - Its 3 card Monty . Caveat Emptor Folks!
As the WSJ reports today "Among the hottest flashpoints: Some funds have exploited an accounting loophole by buying stakes in other private-equity funds at big discounts on the secondary market and then marking them up immediately to their official net asset values. Sometimes the technique has resulted in gains of 1,000% or more in a single day."
Such honesty and transparency. What could possibly go wrong handing over 401(k) funds to such scrupulous and honest choir boys??????
Pensions represent a huge portion of middle class retirement money: US government-pension assets alone are greater than all 401(k) holdings. If the retirees of CALPERS, CALStrs, Texas Teachers, etc. can access PE returns, why not the rest of us? Or, if PE is so evil (as many comments here argue), then no one should have access... though capital markets would figure out a way around that. Competition is the key here. Like with mutual funds and ETFs, competition will drive fees toward marginal cost. The biggest risk is, as noted, that government will bail out systemic failures. But that horse left the barn a long time ago: S&Ls, banks, Freddie, Fannie, homeowners, stock markets....
on the theory that huge sums will go into PE . . . means huge sums coming out of NYSE, no?
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what does that do to stock-prices? If someone doesn't invest in PE but their traditional 401k balance drops with the NYSE sell-off while "everyone" moves money into PE . . . feathers flying?
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what does that do to the many derivatives, covenants, etc that ride on stock-prices?
Total equity market is $128 trillion and Eric says the total 401(k) is $12 trillion, so even if 100% of it got diverted from conventional investments (which seems unlikely to me) you might expect a one-time 10% drop. Then either the people who made the switch are really happy, or they get disillusioned and move back into conventional investments and the normal markets return to normal.
Amazing! We learned nothing from 2008 when the pot of gold for “finance bros” was triple A rating for junk debt. Letting all of the fiduciaries in on the mortgage backed bonanza worked out great, didn’t it? The idea of 401K investors checking an annual box for “higher returns” and thus unleashing absentee owned, perpetual capital for the PE industry sounds even worse to me,
PE is the ACTUAL cause of the middle class being gutted. As Evans pointed out, they’ve increased costs and lowered quality in Real Estate and service markets , also add in youth sports. All the things that make up a typical Americans life we are paying exorbitant prices for and getting crap for it.
An example:
In youth hockey, teams need rinks. PE firms buy up the rinks, jack up prices and then barely clean the bathrooms let alone make any necessary repairs or improvements. They’ve also now bought up the video streaming services for not just their rinks but others that make up a league. So you can pay $300/yr for their service, but if your kid plays in a particular league, it’s an extra $100/yr ($400 total) so 2x the cost of the former streaming service. And in a lot of instances, same crappy cameras and bad internet signal as before.
If Trump wants to solve the gutting of the middle class, maybe he should start with these assholes that are making our lives more and more expensive.
I can't hear or read about PE firms and not immediately think of the scene in Goodfellas where they leverage ownership of that nightclub out from under the owner, fleece his inventory and at cost goods by moving them out the back door to sell on the street (saddling the cost on the business), and then finally torch the place to collect the insurance money when the debt is unsustainable.
These guys are literally the hidden force all Americans feel is out there robbing them, but unable to accurately identify because they are so under reported.
That is a PERFECT description!
Great observation Mark.---Subscription journalism is--(thank you Eric/RACKET)--capable of creating the healthy human national conversation our Republic deserves.----Focus on curing the disease and the symptoms will disappear.
This has been a huge gripe from Matt over the years. Basically our 4th estate stopped doing it's job. And it's sad that we now effectively need independant actors to start filling in. I have no issues subscribing to a couple of them, but it's also a bit naive to think that ~5 reporters (hypothetical based on subscribing to just a few subs) can replace the vast network of local and national newspapers that have been eroded over the past 30 years.
But, yes, I'm 100% appreciative of Racket (and in particular these financial reports from Eric) for providing solid news that is just simply missing from our national discourse.
Unfortunately, having established the infrastructure such as substack to enable the distribution of these voices, has also enabled the counterweight of the Robert Reichs, Paul Krugmans, and Heather Cox Richardsons of the world to cherry pick data to snow the literate-leaning dumbmasses out there more regularly.
Nailed it Mark.
In youth sports, "club teams" are probably a worse offender by far. "Your kid has talent" enough to drive all over the state all the time spending more and more money in that sports black hole.
Ever notice how the events become all encompassing and your social group becomes narrowed, and free time gets sucked up by things you are paying more for?
Yes. Unless you've been through it, you don't know any better so its on us to teach the parents coming up behind us. It's killing the kids development too - we know so much more about how kids actually develop as athletes and it doesn't involve more car time, another hotel stay or a tournament of 5 games in a weekend.
Maybe it turns out all these clubs are owned by Exxon and Hilton lol.
Honestly, it wouldn't surprise me!
I saw a kid who was a lousy soccer goalie in 7th grade go to Ireland because some guy said he had talent. Cost the parents $7,500. When I asked what their goal was they said free college. Since my son was in college and on a rare lacrosse scholarship I asked if they knew the odds. They lost interest in learning more. That’s how “club” teams sell.
Many sports teams and karate studios are run ethically. But when I was a kid the karate teacher came up and told me and another kid near the water fountain during a break that we were the ones he had his eye on, that we had real talent and the sky was the limit for us.
I had seen the other kid's technique and knew him pretty well. He was not headed for the stars in any endeavor, so I pretty quickly reasoned that my upper bound might not be as high as reported either, that there was probably another incentive at work here, and I lost interest entirely.
You also wonder how many classes he would tell this in to 2-3 kids. It's a scam.
Amazed how much money parents spend on this with the hope that their son or daughter will get an athletic scholarship to a quality university. Would have been better off saving the money and effort and plowing all that expense into a good quality college fund, etc.
Trump wanting to solve the gutting of the middle class? Gutting the middle and working classes and screwing over the poor even further is the number-one goal of his administration.
I disagree. A lot of his policies and actions have been solid decisions for the financial health of this country which will be beneficial to all in the long run.
Donald Trump has only two goals in life: enriching himself and glorifying the Trump name and will try any type of scam to achieve those goals. He's enraptured by the winners who have money or power and despises the rest of us, the losers, who don't. His second administration has quickly deregulated one industry after another, initiating a huge upward transfer of wealth with himself a major beneficiary. Check out the August 18 issue of The New Yorker for a blow by blow account of how he's profiting off his presidency.
I often share the old JFK line--who--when a reporter observed that "..where there's smoke there's fire.." replied "..possibly..or somebody has a smoke making machine.."
It's hard to get a read on Trump the media manipulator vs. Trump the President because--the average American is forced to view political/financial reality through an electronic smokescreen. It's clear that subscription journalism is still in its infancy--the possibilities for a new truth/fact based national conversation abound.
This actually is incorrect - real wage gains for the lowest wage earners have been impressive under both of Trump's terms. This deal I am not too sure about - but economically as far as wages, Trump is the working class savior.
Trump at least THINKS about normal people before acting. Bush/Obama/etc. didn't care, they did as their masters bid them to do. But Trump can keep some traditional Republican support with some of his actions (e.g., trillion $ tax cuts for rich people, exposing 401(k) money to rapacious vultures) that may give him more breathing room to try to fix the underlying problems.
I'm not sure his current strategies for the middle class are working, but at least he's giving them lip service.
Two things. First, companies themselves can screen whether PE investments are allowed to be 401K offered employees. Second, employees themselves can conduct due diligence on fees in those 401K PE offerings. That’s two guardrails. Does your company hate you? Do you hate yourself? If yes, go ahead and invest your 401K in high fee PE offerings. Stupid is as stupid does.
I agree 100%. People need to do their research and they will be ok instead of blaming everybody else. I make my own decisions how I invest my 401K and it’s my responsibility to do due diligence. I wish I had the same ability to invest all the money I paid for so many years into Social Security the way I want and keep it, I am sure I would be much better off now.
US government needs your and mine and every other young person’s FICA tax to keep the Ponzi scheme rolling for the financially illiterate and other low intelligent fellow citizens. Personally I’d rather have this system than one with even more homeless and destitute. That said, it is your $$ and point taken.
I guess this is one way to support people who made bad decisions or faces bad circumstances but there are other type of safety nets we should be considering.
SS is a safety net I’m semi-okay with because to qualify for it most have to work. The bar is so low now that some people don’t even work anymore (and collect Medicaid instead). That is the part of the system I don’t like. To get Medicaid I think you should either have to work minimal hours or if you can’t find job, put in volunteer hours. There can be exceptions to this, but they ought to be well defined (like having severe autism).
Yes! Many 401K investors are excellent at due diligence and deep research on scams. Those who aren't are just lazy and should be punished.
That is why plan sponsors need to configure an investment portfolio of options properly.
True. I've never lost money in a 401K with properly configured options. Did lose money on a number of investment options but that proves they weren't properly configured.
(Matt Stoller/BIG reports regularly on these types of financial issues. )
Many of us--definitely myself--are in the same boat Matt T. found himself in during the '08 crash--didn't speak the lingo--didn't understand the grift. My view: Headline crisis to crisis--no solutions forthcoming distraction to create anxious certainty and fear while the--it seems now obvious--the rigged game hums along undisturbed. Subscription journalism is a two way street.
Nonsense. Put up your proof or stifle.
The middle class is gutted by regulations. Other causes are not close to having their level of impact.
I work in IT, and all of our customers that end up selling to PE are gone within a couple of years. I always hated Trump, but man, now I really hate the man. He's not intelligent. Anybody at this point that thinks he cares about us anymore than the Octopus Deep State does? Brain Dead. Clue... Nobody cares about you!!! The rich and powerful want you dead!
Just don’t invest in high fee PE ETF offered. In fact, if it’s offered through your 401K ask your HR Benefits Director why it’s there in the first place. Take some responsibility for yourself and quiet the hate? If you are so gullible to invest in high fee 401K offerings then that is on you.
I think Social Security is still around because there are so many financially stupid fellow citizens. These people need it because they need the government to take care of them cradle to grave. I’ve always worked like SS won’t even be available when I retire (and maybe it won’t)
My girl!!
What could go wrong folks? Private equity has done wonders for the real-estate and services markets (HVAC/Plumbing/Electrical). 🙄🙄🙄
Now imagine them getting access to our retirement accounts.
I've got a sneaking suspicion we're not going to like the the way this ends.
You don't hate the media enough - you think you do, but you don't. https://x.com/Evans_Wroten
Yes it’s a disaster - if you fall for the false promise and invest. PE returns have been lousy the last decade, so they need fresh suckers, er, investors. DON’T BUY THESE FUNDS IF THEY GET INTO YOUR 401K!
Bravo to Eric Salzman for blowing the whistle on this.
Matt is spot on re PE getting into 401k's. PE deals have underperformed for years, as too much money is already chasing too few deals. PE deals used to be a boutique industry, which was restricted to a very small subset of investors. At that time, there were some tremendous returns being generated. Those returns drove more and more funds wanting access to these deals, which drove returns down over time. Now the good deals with high returns are very few and far between, and adding 401k's to the chase will continue to drive returns down.
Eric
Why is there no national conversation demanding a return of legislation like Glass-Steagall? --- The DNC/Brussels/CCP Davos crowd isn't building anything. Their business model --(pray for the the French and English people)--seems to be re-colonization of our Republic--the destruction of the nation state and the right to gouge and loot every dime hard working Americans make. They offer no prosperous human future. Only the LIE and a sterile managerial/surveillance totalitarianism that reduces citizenship and civilization to a one size fits all serfdom. (30 people a day are being arrested in England for thought and speech crimes.)
This Salzman report seems to indicate a further loosening of the wolves. Why? Bright shiny objects for the Wall Street crowd and a scorched earth American landscape for We the People?
This is the kind of limbo experienced in nightmares. Terrible things are underway and the dreamer is frozen witness to the horror unable to wake up.--Isn't it time?
Yep!! And We the People need more whistles. Louder please!!
The thing is, nobody is saying you have to. I refuse to believe PE has such clout that your 401(k) will stop having a decent sp500 fund on the menu.
In general, if there is a thing that A wants to sell and B wants to buy at a mutually agreeable price, and no C who is harmed by the transaction, there are *very* few circumstances where I’m inclined to think the government has any business saying no.
If Eric is right that “PE is going to have to really stick it to their new retail clients in the form of crummy deals” then they will not get a lot of business and all this pearl-clutching will have been just noise.
I wouldn’t invest even a tiny fraction of my retirement assets in PE and would certainly not encourage anyone else to either. But in the end I think Eric said it best in his last paragraph: “I understand discerning adults get to choose for themselves what they are investing in.”
This is exactly my point- they want people who don’t know any better - suckers - to sign up. And that’s a LOT of people. Enough will sign up as a sucker is born every second in this country. They won’t look at past performance or fees, just the name. “Goldman Sachs” or “KKR” attached to the name of a fund will be enough for them. And then Social Security is all they’ll have for retirement.
People can do a lot of stupid things. But if you want the government to protect all of them from all those things…well, there’s a pretty slippery slope from that to “you’ll own nothing and be happy.”
I’ve got only minor reservations about mandating various hoops to jump through. My Schwab account wouldn’t let me invest in options until I had a certain balance and read a bunch of information sheets, and even then I think I’m limited in how much of my portfolio I can do that with. (Maybe, if so I’ve never come near it.) I agree that PE should never be something you have to opt *out* of. But I can’t see that happening anyway; my biggest complaint about the various employer 401(k) plans I’ve had over the years was that the choices were *too* conservative; I’ve seen plans that didn’t even have a science&tech mutual fund.
I was ignorant about their move into the services markets until I gained first-hand experience earlier in the year. It's a real problem that will affect not only those who work for the companies but also those who use them.
"I've got a sneaking suspicion we're not going to like the the way this ends"
Between PE getting their hands on 401K funds, the craze of cryptocurrency, and a, uh, well-valued stock market, what could possible go wrong?
:)!!
Private equity should have never existed in the first place. The whole purpose of financial markets is to help businesses grow and create value. PE never created any additional value; it simply lined the pockets of mediocrities like Mitt Romney, a man who was the perfect impersonation of an intelligent person. If you have an active 401K invest in index funds with very low expense ratios. It makes a huge difference on your returns over time.
PE exists for the same reason leeches exist
You just need to tax their returns to the owners as income - no capital gains wavers. That would fix a bunch of it.
Bingo. Private equity funds just buy up existing and bundle existing businesses but don’t they create new businesses. Funneling capital into PE diverts capital away from creating new ventures that grow the economy. This is vulture capitalism and the opposite of entrepreneurship.
Stupid question, can private equity buy ETFs and vice versa?
My gut tells me, this is nothing more than enabling a way for super wealthy family investment groups and large pension funds to dump this toxic garbage onto gullible retail investors. My bet is, all the real money was made in private equity years ago and what is left is a lot of equity that hasn’t been marked to market in a long time and won’t be before it’s in retail investors hands.
Yes, this smells like the mortgage debacle to me. Wrap trash in a few 'goods' deals and push it out the door.
If they coupled this with transparency rules regarding fees, for everyone, clear listing of components in the deal. ETFs list their holdings, if not they actual number of shares they do list the % so you can see if they are weighted the way that seems right to you.
A little financial education in HS and when you open and account would help. Starting with "never invest in things you don't understand".
I hope Matt keeps us up to date on this. In no way do I claim to understand how all of our systems work. But at 67 years old, I have become pretty good at smelling fuckery. And so far what I am smelling is pure 100% fuckery. Hopefully I am wrong.
This just came across Bloomberg...when they start Squaring things the end is nigh
Other managers have found success. Accel-KKR Co. extended its ownership of isolved, a human-resources software firm, raising $1.9 billion for a second continuation vehicle. CapVest, meanwhile, is attempting to move Curium Pharma to a second continuation vehicle, and PAI Partners is looking to do the same with ice cream producer Froneri, the people said.
CapVest didn’t respond to a request for comment. PAI declined to comment.
Goldman has emerged as the lead investor in Accel-KKR’s CV-squared. It is also a lead investor in PAI’s CV-squared transactions, according to people with knowledge of the deals.
When PE is buying up all sort of businesses large and small, to the detriment of their employees, owners and the consuming public, one just has to think that something is rotten in Denmark. I do truly believe that Trump has the best interest of working and consuming Americans at heart so this needs to be revisited. PE's track record counsels extreme caution.
Unfortunately, even when I was in the business, only our best (high net worth, institutional) clients got to get the goodies. On a rare occasion regular joes could participate. I feel that Matt is probably correct, this could turn into a shit show “bubble” because Wall Street is notorious for packaging for the meager folks. My point, was that there are those that have the knowledge and stomach to participate and it’ll be nice to be able to. As always, we will have to see how it plays out. My feeling is, many of the investment firms will be guarded as to what folks can actually invest in, their own personal policies, because they know what this can lead to. I can understand Trumps rationale, it’s your money but…investing is not for the faint of heart
True, but as someone who manages a 401k program, these funds are more likely than not going to be poor performers over the life, whereas an index 500 fund with almost no fees will outperform it over the life of a person's investment period.
Now as to a glut of investment capital, we actually are getting into a more scarce capital environment - the Boomers are retiring and taking their investment money with them - so getting more capital wouldn't be terrible and might further ease pressure on interest rates.
I agree, but I’ve done better with individual stocks and at one point we were interested in purchasing an investment property but it was not permitted in our 401k at the time. Too bad, for us, as it would have been an excellent opportunity.
I am trying to figure out how they would add PE to a retail 401K user’s options. A PE company, it can’t be individual up and coming companies.
The PE company would have to set up a mutual fund or ETF to provide an investment option, probably created by a big trading house, or maybe by themselves, and then introduced as an investment option by the trading house acting as the 401k provider to businesses looking for that service for its employees.
The problem for them will be the fee declarations. Because they have to be there. These will be expensive funds, meaning they will have to generate big returns to overcome them. This will make them quite volatile and will scare away most of the risk averse crowd. If they can create a track record of strong returns, they will be purchased. If they can't, no one will choose them.
Let to looting begin :(
Retail always bails out the banks, government, societal fuck ups. Now PE will feed at the trough. But this time is a bit different as retail are on their knees with a vast majority of Americans living paycheck to paycheck and/or heavily indebted and/or have only $500 in savings.
In other words, raid ppl's last remnant of wealth and see what happens....
I actually have believed for some time that 401K funds are huge scams anyway. I'm 61. I don't have a 'retirement fund.' Why WOULD I? What purpose does it serve? It's a myth created by companies like Vanguard to encourage you to park your money in something that is mediocre at best.
I have used any excess funds I have to buy real estate. Not speculatively, just buy some parcels. I now own my commercial property that my business is on. I also own two agricultural properties and a private residence, while my husband owns the house we live in. All told, in less than 15 years, I have amassed close to 2 million dollars in value and spent less than a tenth of that.
People need to take charge of their own money and quit being lazy about it. Parking your money somewhere under someone else's control leaves you open to just such a thing.
To me, 401K are as bad as Private Equity....they are just sneakier about it.
Real Estate can be a very good opportunity and pleased to see you've done well - I assume this real estate can generate income for you as well.
Your take on 401k is pretty wrong however, especially if your employer matches your contribution. An immediate 50% return is not unusual - on every dollar you invest up to a certain amount. No investment has that guarantee. Not even real estate.
I disagree. Any 'investment' that I don't have control over is not really mine. Sure, you say there is this big immediate return....but that's not true, is it? Try using that money. You get hit with huge penalties. And then the 401K fees eat away at as well. Plus, the stock market is really kind of make believe and is subject to huge swings. It should NEVER be the bulk of the investments you have....and YET, people depend on their 401Ks to totally fund their retirement. It's ridiculous. If you want to have a stock account, just get your own. You don't need brokers anymore. I'm big on independence. 401Ks are NOT independence....they are always controlled by someone....and can be taken away or manipulated at any time because they are not under your control. I don't trust them. They are Social Security by another name....and look how that's turned out.
Now, in worst case scenario, real estate can also be fucked with....see Venezuala....but in that case, everything is taken so nobody wins, except the government.
For right now, right here, I think putting my money in real estate is the best possible scenario.......and also I plan to keep working. I would be bored to tears if I retired.....maybe I will work part time, but will always work.
It's a retirement account. It isn't meant to be grabbed whenever you want it. It is a leg to look at in your investing portfolio. Real Estate is generally a good place to put money, and I have done some which I will do quite nicely with, but it isn't very liquid, and if you need it in a down market then what? Like all investments it has its pluses and minuses. There are minimal fees in most 401ks mostly directed at loans. Some of the "fees" they are required to report are the fees inside of the mutual fund options which are there when you buy and for which you are reimbursed when you sell - but the DOL requires you to only discuss the front end. It's a stupid law.
Now, your 401k is yours. Tax law could change of course. But the account is yours. You can take it with you when you move on. You completely control the investment options - ours actually allows you to set up a self directed account with Schwab so you can buy just about anything. No one can take any of it.
A 50% immediate return doesn't take into account the general equity annual return of between 7-8%. That's on top of it. My 401ks have done pretty well, and as I moved jobs I have rolled them over into my own IRA which is worth quite a bit of money at this point, which I can grab whenever I want and just pay nominal income tax like any other income. Could the market crash? Sure. But at some point it is incumbent on me to then move into safer, less exposed investments.
Like you I am in my 60s with no desire to stop working. I'm still saving money through yet another 401k program - with investment returns averaging 14% (it's been a few good years!) on top of the initial 50%.
You have been brainwashed to believe you are neither smart enough or disciplined enough to save for retirement yourself. That's the big scam....'Hey dummy, we KNOW you gonna spend all your money if we let you, so let Big Daddy at Vanguard take care of your money.' I don't think that way. I am disciplined. BUT, if I want to invest in something big, I should be able to get my money whenever I want....but you are ONLY allowed to park that money certain places.....too confining.....too conformed. Nobody EVER got rich with a 401K. I get that it seems like some sort of security but these companies aren't managing them out of the goodness of their hearts....they are making bank....for doing nothing.....and what happens if one of them goes belly up? The land I bought is THERE....it's tangible. It's also a relatively liquid asset. To each his own. I purchased 25 acres in 2017 for $200,000.....it's now worth close to a million.....that's a tad better than 50%.
OK - I'm not brainwashed. I would consider us both somewhat financially sophisticated but if you just want to start calling someone names because you have an emotional aversion to a specific type of investment you don't like, and which just about every financial professional would say you are a bit nuts to say so, fine.
A 401k is part of a balanced portfolio of other assets, your home, other real estate, 401ks, private IRA's and other savings and investments. I think the hot investment thing now is fine art, go figure.
Land is not liquid, you might like to dispute that, but it is a classic non-liquid asset - it must be sold which takes time. Sometimes months, and with what you say you have sometimes longer. It's never quick. Of course you can get a bank to borrow against it at 9% if you really need it, but then again you can borrow against your 401k for a fair amount. And once you are 59 1/2 you can just take it. You also needed 200,000 to buy it. I'm glad you could get a million for it now. But most people don't have near that liquidity, and you and I both know that. With real estate you need money to make money. Normally saved up over time. Or a job with enough cash flow to handle payments. Now of course with Roth 401ks you do have a bit more flexibility. But it is meant to be a retirement account. I would never advocate putting more money into a 401k beyond the match unless you don't have anywhere else to put it. You take the free money.
Oh - and the stock market has never gone belly up. It has gone down - but the worst downturns were recovered within the year - usually 6 months - and if you have cash, provides an excellent opportunity to buy on the cheap while others panic because they needed the cash. If you needed the cash, could you wait 3 years to get it? Or would you have to sell it at say 350K? I'm a bit familiar with land deals. If it 25 acres outside a growing town you are in luck. Based on your appreciation estimate it must be. But what if your town denies permitting and zoning - is your land still worth a million? Yes, you see, like all investments, there is risk. You manage it as best you can.
For many many people, a 401k with a match is an excellent piece of an overall investment strategy. It requires little effort and you can buy the market pretty cheap, much cheaper than you can in an outside investment account. For those of us who prefer more hands on, we can take on the bigger opportunities.
Lois, many employers now offer Roth 401K in their plans which is gold standard retirement account. When you sell your property later in life, Uncle Sam will take his cut, and kick you up the tax bracket. When I take RMD’s from my Roth, I won’t feel that pinch. Smart 401K investors can also roll over pre (or post tax) 401K contributions/earnings to an In-Plan Roth Rollover (IPRR), which boosts Roth account even further. Most plans allow you to do this 2x per year. Please consult your CPA before doing so however, so you avoid jumping tax brackets. Earnings grow tax free in Roths. Roths didn’t show up until around 2010 so most Boomers didn’t catch on in their 401K’s. But Gen X and below, no excuse not to exploit this tremendous savings vehicle.
The Roth and 401K Roth are so powerful (tax protection during growth and when taking withdrawals) that I’m wondering if someday the government will no longer allow new accounts.
“When I take RMD’s from my Roth, I won’t feel that pinch.”
For two reasons: first, Roth withdrawals are tax free as long as you’ve had the Roth for five years and are of retirement age, and second, because Roths don’t even have RMDs!
Y'all can do whatever you want. BTW, I have had a Roth. I don't believe in money just sitting around doing nothing. I want to use it. Just because I'm in my 60s, doesn't mean I have given up on life. I love how people are just fighting me tooth and nail over this.
They seem very scammy to me......someone else supposedly 'taking care of your money.' I don't trust them, period. Like I said, they aren't doing this out of the goodness of their hearts. There's always a catch. And there are ways to sell property and not get hit with the big capital gains taxes as well.....and Trump is hopefully gonna make that even better. You pay tax on EVERYTHING....and if you think you are somehow getting out of the tax....well, Bless your lil heart. Plus, I work for myself, so how is my employer gonna match? Most people are too scared shitless to do anything for themselves....they want someone taking care of them. I don't trust other people to mind my money for me. You want to trust it, that's on you.....and now, along comes Private Equity and they are gonna rain on your parade......like I said, scammy.
Why do you think $ in a Roth or other investment vehicle just ‘sits around’ doing nothing? If you think that way, it’s you who are the ‘dummy’. The $ is invested in low fee Vanguard / Fidelity / Schwab index funds and compounds. Compounding is of enormous value. Feels like something may have occurred to you or a loved one to come across so strong against saving for retirement in IRA/Roth investment accounts? If you invest in high risk vehicles you might get snake-bit. These accounts are readily available to the ‘masses’. What’s not readily available is counseling on which investments to select. But not too difficult to self educate. Most folks don’t have large sums to invest in real estate (outside of their primary homes). If you are a sucker and invest in high fee PE funds in your 401K, that is indeed, scammy.
I am a dummy who thought that when I retire and start drawing on the 401k, the gains would be taxed like capital gains. Haha, I'm an idiot. So, the question is if I would have been better off just investing in the same damn thing as the 401k, paid the taxes only on the money I earned which I used to invest, yes and forgo the employer match; or investing on my own from the get go. As it is my wife and I are going to get slammed when RMD starts because she wants to live on as little as possible and keep the money in 401k instead of liberating it. Oh, and I have a fried who does as Lois says, he invests in real estate rental property and exclusively takes only gold plated renters so no dope dealers or party animals. He boasts all the time about how much money he has made. My wealth, on the other hand is completely fictional, it does not become real until I sell which will probably be when everyone else is trying to sell and there isn't enough money around to keep the price up. I just assume that I will get out of it basically what I invested in it, ultimate blackpiller that I am.
Nothing happened to me. I can think. I can open a Charles Schwab account and make my own money.....Why would I pay some company a percentage of my account, compounded over time, if I can do it myself.
I ALWAYS distrust when the government sets something up to 'take care' of us. You should too. NOTHING is as good as it's made out to be.
I don't like the whole idea that 401K is the ONLY smart thing to do. That makes me suspicious as hell. COVID has sensitized me to the whole, 'do this for your own good and trust us' bit.
Once again.....these companies that administer the funds....they aren't doing it for YOU.....they are doing it for THEM.....and they will sell you out in a minute if they are allowed too....oh, and some shit in DC will find a way to 'borrow' the money, just like they did with Soc Sec.
Hey, you do it your way, I'll do it mine. Chances are, we are both gonna be fine. I don't ever follow the herd, never have.
You can open a Roth at Schwab! That’s where mine is. And you can invest in anything that Schwab offers; I have both stocks and mutual funds and have occasionally even dabbled in options in a small way.
The *only* differences between a Schwab Roth and a normal Schwab brokerage account is that growth is tax-free and (of course) the government limits how much you can put in it directly. I do annual (taxable) conversions from my conventional IRA up to the tax-bracket break-even point. But there are no fees for the Roth in particular.
If it rubs you the wrong way, by all means give it a miss. But it sounds to me like you have some misconceptions that you might be happy to correct!
I don't want money I get penalized for spending before someone says I can. How many different ways do I have to say that? I have had a Roth. I'm totally fine without a retirement account, BTW. This is a relatively new phenomenon and it's like EVERYONE MUST HAVE RETIREMENT ACCOUNT. No, no we don't. Guess what? This will absolutely horrify you....at 61 yrs of age, I don't have health insurance either. I don't go for regular 'find something wrong with me' visits to a doctor that doesn't give a shit about me, just wants to put me on meds I don't need. I work out every morning before work and ride my horses on the weekend. I have pretty stout life insurance for my husband in case a horse kicks me in the head. I have a job, vet, that will allow me to work as long as I am able. I have money in the bank. I am not going to sit around and worry about how much I manage to put in the bank. Guess what? Whoever dies with the least left on the table WINS....it means we have lived our lives to the fullest and done whatever we wanted while ALIVE. I don't want to waste away in some gawdawful retirement home. I am not going to buy long term care insurance, just to be warehoused where a bunch of strangers come in and wipe my ass. If I get that bad off, I'll get on a bad horse and let that be my way out. Life is meant to lived. Over planning steals from your todays......COUNTING on the idea that you are guaranteed all the tomorrows...you are not. I'm living my tomorrows today. I don't ask anyone for anything. Oh, and I WOULD be able to live on my Soc Sec payments if needed. Because I worked my entire life, my payments are pretty generous, especially if I don't have any major debt.
I'm not getting a retirement account, period. I'm gonna keep on keepin on.
George Carlin gave the best advice to "regular" investors contemplating PE: "It's a big club, and you aren't in it." It has always been a "friends and family" sort of business, and the thought that thousands of anonymous nobodies will get cut in on the good stuff is just hilarious. And, yes, if money pours in there won't be enough deals to go around until some people concoct some slop to feed the hogs.
My libertarian side says people should be free to do what they want. But, to read the article, they already are free, the impediment is that bad acts might be punished in civil lawsuits. Removing the threat of suit against abusive practices is not libertarianism, it is The Grift. If investment managers have not invested in PE because of the threat of being sued in open court--- what does that tell you about how they view those products?
At minimum, plan sponsors should be absolutely forbidden from making PE (or any ETF or fund that includes more than a de minimis amount of PE) a default holding from which you have to affirmatively opt out. Any investment in PE in a tax-privileged retirement account should be only by affirmative, written direction by the beneficial owner of the account, after being fully informed of the potential pitfalls.
I have supported Trump since 2016, but I have to say that the grift and pay-to-play in this administration is getting real old, real fast. If only the Democrats weren't just as bad... sigh...
PE is and has been a underperforming asset for many years . Back in the day David Swensen Head of Yale endowment paved the way for PE to be considered a viable asset class. He was early and the field had few participants . The fees from PE are incredibly high , liquidity low , returns sub par and the list goes on . There are simply too many PE firms chasing too few deals . guilt also flows to the consultants who are part of this gravy train . Ai will end the discussion about risk return when there are enough data points to analyze and will make companies more efficient without the clever machinations of PE managers . The duration of PE funds can extend substantially beyond the pitch book , more fees to eat away at returns and Ltds have little ability or recourse . In addition there are publicly traded securities which Track PE performance . They cost investors 1/10 of the price and like any publicly traded you can buy and sell , rather than being locked in. There was a time that PE was a great investment but the golden goose has been turned into lukewarm mush . If someone is touting PE they have an economic stake .This is the tip of the iceberg of issues for investors to consider for this over hyped underperforming asset class . Look at how often One PE firm sells to another - Its 3 card Monty . Caveat Emptor Folks!
As the WSJ reports today "Among the hottest flashpoints: Some funds have exploited an accounting loophole by buying stakes in other private-equity funds at big discounts on the secondary market and then marking them up immediately to their official net asset values. Sometimes the technique has resulted in gains of 1,000% or more in a single day."
Such honesty and transparency. What could possibly go wrong handing over 401(k) funds to such scrupulous and honest choir boys??????
Pensions represent a huge portion of middle class retirement money: US government-pension assets alone are greater than all 401(k) holdings. If the retirees of CALPERS, CALStrs, Texas Teachers, etc. can access PE returns, why not the rest of us? Or, if PE is so evil (as many comments here argue), then no one should have access... though capital markets would figure out a way around that. Competition is the key here. Like with mutual funds and ETFs, competition will drive fees toward marginal cost. The biggest risk is, as noted, that government will bail out systemic failures. But that horse left the barn a long time ago: S&Ls, banks, Freddie, Fannie, homeowners, stock markets....
IIRC, CALPERS, etc. are defined benefit plans and further are not subject to ERISA.
on the theory that huge sums will go into PE . . . means huge sums coming out of NYSE, no?
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what does that do to stock-prices? If someone doesn't invest in PE but their traditional 401k balance drops with the NYSE sell-off while "everyone" moves money into PE . . . feathers flying?
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what does that do to the many derivatives, covenants, etc that ride on stock-prices?
Total equity market is $128 trillion and Eric says the total 401(k) is $12 trillion, so even if 100% of it got diverted from conventional investments (which seems unlikely to me) you might expect a one-time 10% drop. Then either the people who made the switch are really happy, or they get disillusioned and move back into conventional investments and the normal markets return to normal.
Amazing! We learned nothing from 2008 when the pot of gold for “finance bros” was triple A rating for junk debt. Letting all of the fiduciaries in on the mortgage backed bonanza worked out great, didn’t it? The idea of 401K investors checking an annual box for “higher returns” and thus unleashing absentee owned, perpetual capital for the PE industry sounds even worse to me,
Some bankrupt cities have triple A rated municipal bonds. Based on the ability to keep taxing.