What Your 401(k) Provider Doesn’t Want You to Know
Born in 1984, the 401(k) plan gave regular Americans a way to make tax-deductible contributions to a retirement account directly from their paychecks.
Today, it’s the single most important investment vehicle for most people in the country:
- 90 million Americans participate in 401(k)s
- $6 trillion in assets are invested in 401(k)s
- 51% of employers match a portion of employee 401(k) contributions
The only problem? With trillions of dollars at stake, financial firms have scrambled to get their hands in as many 401(k) cookie jars as possible.
And today, the vast majority of plans are characterized by huge commissions, expensively managed funds, and layer upon layer of additional – and often hidden – charges.
Flying Below the Radar
Today’s infographic is from Tony Robbins, and it uses data and talking points from his #1 Best Selling book Unshakeable: Your Financial Freedom Playbook, which is now available on paperback.
It reveals that although 401(k) plans can be used as crucial vehicles for tax-free retirement saving, 92% of investors admit that they do not have any clue about the fees associated with their plan.
Further, 71% of people enrolled in 401(k)s incorrectly think that there are no fees at all.
The Retirement Savings Drain
Many people are unaware of the types of fees that get loaded onto 401(k) plans – and here are just some of them that get passed to the investor:
- Investment expenses
- Communication expenses
- Bookkeeping expenses
- Administrative expenses
- Trustee expenses
- Legal expenses
- Transactional expenses
- Stewardship expenses
How much does this all end up costing?
According to a thinktank report from Robert Hiltonsmith, the additional 401(k) fees can cut down the size of your retirement nest egg by an average of 30% for an average worker earning $30,000 per year (and saving 5%), this ends up being $154,794 over his or her lifetime.
For someone making $90,000 per year, it works out to a whopping $277,000 in 401(k) fees.
Paying to Play
Hidden fees are bad, but this next practice is potentially even worse.
It turns out that most big-name 401(k) providers accept payments from the mutual funds they offer on their plans, as a part of revenue sharing agreements. In other words, many of the funds you get to choose from are not there based on merit – instead, they were the ones that coughed up the money to be there.
Not surprisingly, these tend to be actively managed, expensive funds – some of which even charge a “front-end load” fee of 3% to even buy into.
Why are there so few options to choose from?
- 93% of 401(k) plans carry under $5 million in total plan assets
- These are the small and medium-sized companies that make up most of the economy
- However, they also have the lowest buying power to demand better options for their employees
As a result, most providers offer limited options to their smaller, less lucrative accounts – and the low fee options that are offered are sometimes marked up big time.
For example, one major insurance company offers an S&P 500 index fund for 1.68% annually when the actual cost is 0.05%. That’s a 3,260% markup!
Small Fees Make a Big Difference
How much do these seemingly tiny percentages really hurt savers? More than you think.
Take two people saving for retirement generating the same return – one is charged 1% in fees, and one is charged 2%.
The 1% difference in fees may not sound like much, but through the power of compound interest, it works out to 10 years of extra retirement money!
What to Do About It?
The problems here are systemic, and not any one company is to be blamed. If you want to take action, here’s what you can do:
Examine: Take a look at your plan’s fee disclosures and the expense ratios of mutual funds you’re invested in. If expense ratios are above 1%, you are likely paying too much.
Compare: Look at available fund options and switch to lower fee options if they offer similar levels of performance.
Lobby: If your 401(k) is getting battered by fees, tell your employer. Employers not only have a fiduciary duty to benchmark their 401(k)s, but also to seek the best option for employees.
The journey towards financial freedom is tough enough as it is – and while a 401(k) is a wonderful tool to help you get there, it needs to be used correctly!
The Allure of Craft Cannabis to Investors
Craft products are taking the retail world by storm. Find out why investors should be paying close attention to craft cannabis and its potential impact.
The Investor Appeal in Craft Cannabis
They say if you do what you love, then the money will follow. In the multi-billion dollar cannabis business, that has certainly proved true for those who have been passionate about the plant for decades — otherwise known as craft growers.
Today’s infographic from Pasha Brands dives into the huge consumer demand for craft products, and why investors should pay attention to this trend as it extends into cannabis.
The Perfect Craft Product
Chances are, you may have encountered any of the following at least once: microbrewed beer, specialty coffee, premium wine, or organic food. They’ve become so popular, that craft versions of all these are steadily carving a valuable niche in their original markets.
|U.S. Market Size, 2017||Craft Market Size, 2017||Share of total|
|Beer vs Microbrew Beer||$111B||$26B||23%|
|Coffee vs Specialty Coffee||$32B||$10B||31%|
|Wine vs Premium Wine||$80B||$44.8B||56%|
|Food vs Organic Food||$898B||$49.4B||5.5%|
Whether it’s introducing flavors into brews, slow-roasting beans, producing wine in small lots, or using a conscious “farm to table” label — what they have in common is the careful attention that’s paid to the process from start to end.
Craft cannabis bears a strong resemblance to all of these in that way, as growing it involves extra care, compared to large-scale producers. For example, hand-trimming is more labor intensive than using machines, but results in products with superior quality.
What are some other characteristics of craft cannabis?
- Attention to detail
A hands-on approach allows growers to personally ensure each cannabis plant is healthy.
- Sustainable practices
The use of organic farming to save energy, creating a smaller environmental footprint.
- Social responsibility
Smaller growers typically leverage local connections, creating employment opportunities.
- Artisanal branding
Sophisticated and modern packaging helps appeal to different types of craft cannabis consumers.
It’s clear why consumers care about craft cannabis. But what does it offer investors?
Making the Case for Craft
Investors should be paying close attention to craft cannabis for three key reasons: a higher price point, a focus on quality, and access to the retail market.
Upscale Price Tag
On average, organic cannabis has a higher price point attached to it, compared to regular grade cannabis.
- Industry average: $9.02/ gram
- Organic average: $11.40/ gram
Using organic methods to grow cannabis means that the final product on shelves boast an enhanced potency and effect. Since craft cannabis is also grown organically, it’s clear that consumers are willing to spend more to secure a premium product.
Promise of Quality
It might not come as a surprise that the most famous craft cannabis regions are also where the biggest volume of legal cannabis sales come from. California and Canada accounted for nearly 38% in global market share in 2017:
- Worldwide sales: $9.5 billion
- California sales: $3 billion
- Rest of U.S. sales: $5.5 billion
- Canada sales: $0.6 billion
- Rest of world: $0.4 billion
These two areas have a foothold in cannabis sales, and with recreational legalization unfolding in both – and 75 million people living between the two jurisdictions – it will only continue to grow.
Opening the Doors
Following nation-wide legalization in Canada and an increasing number of states in the U.S., the continent is facing a cannabis shortage. Why? As it turns out, while craft growers are abundant, they still face regulatory hurdles in order to move from the “gray” underground market into launching legal operations.
Craft cannabis could be a cornerstone for industry growth, but its growers have been in the shadows for a long time. As cannabis gains momentum, tapping into the huge network of craft growers will be key for success.
How the Modern Consumer is Different
We all have a stereotypical image of the average consumer – but is it an accurate one? Meet the modern consumer, and what it means for business.
How the Modern Consumer is Different
There is a prevailing wisdom that says the stereotypical American consumer can be defined by certain characteristics.
Based on what popular culture tells us, as well as years of experiences and data, we all have an idea of what the average consumer might look for in a house, car, restaurant, or shopping center.
But as circumstances change, so do consumer tastes – and according to a recent report by Deloitte, the modern consumer is becoming increasingly distinct from those of years past. For us to truly understand how these changes will affect the marketplace and our investments, we need to rethink and update our image of the modern consumer.
A Changing Consumer Base
In their analysis, Deloitte leans heavily on big picture demographic and economic factors to help in summarizing the three major ways in which consumers are changing.
Here are three ways the new consumer is different than in years past:
1. Increasingly Diverse
In terms of ethnicity, the Baby Boomers are 75% white, while the Millennial generation is 56% white. This diversity also transfers to other areas as well, such as sexual and gender identities.
Not surprisingly, future generations are expected to be even more heterogeneous – Gen Z, for example, identifies as being 49% non-white.
2. Under Greater Financial Pressure
Today’s consumers are more educated than ever before, but it’s come at a stiff price. In fact, the cost of education has increased by 65% between 2007 and 2017, and this has translated to a record-setting $1.5 trillion in student loans on the books.
Other costs have mounted as well, leaving the bottom 80% of consumers with effectively no increase in discretionary income over the last decade. To make matters worse, if you single out just the bottom 40% of earners, they actually have less discretionary income to spend than they did back in 2007.
3. Delaying Key Life Milestones
Getting married, having children, and buying a house all have one major thing in common: they can be expensive.
The average person under 35 years old has a 34% lower net worth than they would have had in the 1990s, making it harder to tackle typical adult milestones. In fact, the average couple today is marrying eight years later than they did in 1965, while the U.S. birthrate is at its lowest point in three decades. Meanwhile, homeownership for those aged 24-32 has dropped by 9% since 2005.
A New Landscape for Business?
The modern consumer base is more diverse, but also must deal with increased financial pressures and a delayed start in achieving traditional milestones of adulthood. These demographic and economic factors ultimately have a ripple effect down to businesses and investors.
How do these big picture changes impact your business or investments?
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