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column-how high fees for mutual funds whack retirees - smart kitchen table
MacMiller, Chicago, June 26Reuters)-
When workplace retired depositors begin to accept the new government this fall, mutual fund costs will be a topic for many kitchen tables
The prescribed quarterly statements clearly state the fees they paid for £ 401 (k)s.
But for retirees, a kitchen table chat is also necessary.
After all, smart portfolio management is also important in retirement.
Retirees withdraw assets to pay for living expenses.
These accounts are still charged.
Their impact on retirement lifestyles and portfolio life is much greater than most people understand.
John Ameriks, head of Pioneer investment consulting and research, said: "part of your assets are used to pay for the investment manager . ".
"There is also a portion of the assets that are used to pay you.
When we do our analysis of cuts, we focus only on total spending.
But, to a certain extent, there is a higher proportion of consumption, which cuts the amount of money you can spend.
Ameriks recently counted these data to demonstrate the possible impact of investment costs on retirees.
The results show that many retirees can get more miles from their nest eggs by cutting costs
Or the top job of a former employer. cost 401(k)
Plan or give up high
Actively manage funds.
Americans begin with some basic assumptions.
A 60-year-old investor retired with a $100,000 portfolio and plans to spend 4% of his portfolio balance at the beginning of each year thereafter.
She can choose one of the three same portfolios, before generating 5%-
Total return on investment;
The only difference between the three is the cost of investment. 0.
25%, 1% or 2%.
For the sake of simplicity, Americans take on all the reinvestment of dividends and distributions and do not tax returns.
The three portfolios began with the same $4,000 exit, but there was a big disagreement.
When our retirees reached the age of 65,
The cost portfolio is generating withdrawals.
3% lower than the low amount
15 years later, the gap widened to more than 20%.
Consumption capacity fell sharply.
"The difference sounds small for most people," he said . ".
"I will withdraw 4% and I will pay 1%.
But this 1% is equivalent to 25% of what you pay yourself.
People seem to forget that the cost ratio appears over and over again --
So every year.
It will affect the base of your portfolio, because you will extract a part of the base, so it will also affect your income.
"The impact on account balances is equally significant over time.
Ameriks found that by the age of 70, the balance of low-income people may vary by more than $16,000and high-
By the age of 90, the difference could exceed $45,000. (
Learn more about the Amerik scene in his pioneer blog :)
Of course, the American scenario assumes that you don't get a return on higher fees --
In the form of higher returns.
This is the axe pioneer grind in this debate because it's low-
Cost fund investment
But his hypothesis is supported by a large number of independent studies that do suggest
In the long run, passive investment in costs outweighs active fund management.
For example, a 2006 report submitted by the United States to CongressS.
Government Accountability Bureau (GAO)
Find an increase of 1 percentage point over 20-
The annual cycle of a typical portfolio is 17%.
A Morningstar study found that the annualized return on domestic equity funds with the lowest cost in 2005 was 3.
35% in the period of study, compare 2.
02%, the most expensive.
Jessica Ness, director of financial planning, MacLean, Virginia-
Glassman Wealth Services also believes that,
The cost index fund is a suitable starting point.
"Our default is always low.
Cost Index Fund
Our managers have to explain how they plan to beat it with something else, "she said.
But she thought,
The trust fund provides specific investment strategies that are very appropriate in the turbulent markets we are experiencing now.
"Passive investment makes sense when bull markets roar.
But we like to use active funds when short Bears hit the market because fund managers have the ability to avoid losses.
"It helps to reduce volatility and eliminate zigs and zag," she said . ".
A typical Glassman customer portfolio will be in a passive big-15%
The remaining funds are special active funds.
At present, the two most popular goals are to obtain high returns with the lowest or zero interest rate risk: the double-line Fund with the focus on mortgage loans, the Total Return Bond Fund
And arbitrage funds, the purpose is to make money on the difference in the stock price of the company before the merger.
"Pioneer's point of view on maintaining a high position
"The cost investment makes sense over time," she added . ".
"All you need to know is if you get the money you paid.
We think you have a strategy.
You have to find flowers between weeds.