Blog it out, bros

So Eduardo Porter wrote this, where he lets John Bogle apparently say that passive investing could fix "the greater part" of America's retirement savings "shortage".

Then two of my internet buds, Noah Smith and Ryan Decker threw down.

Here's Ryan.

Here's Noah.

Now if people are approaching retirement with $104,000 and we decide that they need $500,000 or more, then clearly active investing fees are not "the greater part" of the problem. I gotta give that one to Ryan.

But, just because people do things that we think are a problem, doesn't mean it's actually a problem or crisis. Maybe people want to enjoy stuff while they are young and are willing to deal with a lower standard of living when old. I gotta give that one to Noah.

All that said, in general and on average over the long run, people are going to be notably richer from going with the low fee, buy and hold, passive investing approach. Even though his quotes in the Porter piece were messed up, I gotta give that one to Bogle.

Dolla Dolla Bill

Dollar stores got beef!

Dollar Tree had an agreement to buy Family Dollar, but nowDollar General is offering $9 billion cash for Dollar Tree.

So I guess we know how many items Dollar Tree has in its inventory, no?

No word yet about what the new conglomerate plans to do about 50 Cent.

401K plans are screwing employees!

Interesting paper making this point by Curtis & Ayres.

A lot can go wrong in 401k plans. Investors can make bad choices and fail to diversify. But, the plan provider can also cause problems by giving investors a menu with lots of high fee options. Apparently this is common.

My University took us out of TIAA-CREF a couple years ago and sold us to Fidelity, who were only going to offer actively managed relatively high-fee funds. Faculty complained and some index funds and some TIAA-CREF grandfathering were allowed. But we constantly get bombarded with emails from Fidelity.

Anyway, Curtis and Ayres find in their sample that, "investors incur fees both at the plan and fund level. The combination of plan expenses, mutual fund fees, and menu limitations account for a loss of 10.2% of the optimal risk-premium." So the excess return is on average 10 percent lower because of high fees. They even show that the seeming overweighting of investors into their own company's stock in these plans is not necessarily irrational given the high expenses associated with a lot of the other options in many plans.

It's easy to say, we need regulation! But, this is already a fairly highly regulated industry, and more regulation is not always better.

As always, what would help is better financial education for average people, but this is not easy. Tyler and Alex's textbook has a chapter on investing, but I absolutely could not convince my students that they couldn't beat the market on average. Nor could I convince them that the high returns earned by some managers or funds were likely due to survivorship bias.