Читать книгу Digital Wealth - Moore Simon - Страница 8

It used to be different. Previously, defined benefit plans avoided this problem; an employer took responsibility for retirement outcomes of their employers and the investment allocations to meet those needs.

Over time, the emphasis for most nongovernment employers has switched to providing contributions that employees can use to plan for their own retirement in 401(k) plans and similar tax-efficient vehicles. However, this apparently simple switch conceals a fundamental transfer of risk. Whereas previously employers bore the risk of their employees having a successful retirement, now employees carry the risk. The employer was once on the hook for providing a payout in retirement; now they no longer guarantee any payout in retirement. If the employee makes poor investment decisions or doesn’t save enough, then their employer isn’t going to step in and help when retirement comes. And, of course, most people are untrained in investment management.

An employer can be expected to bring in the expertise to understand investment allocations and cost minimization in retirement choices. However, evidence suggests that employees can chase historic returns and use basic strategies such as investing 20 percent across each of five options that are present, even if some choices are very similar and some are not, or loading up on stock in their employer, since they are familiar with the company. These sorts of errors may seem trivial, but can translate into worse investment outcomes when compounded over decades. Other errors, such as significantly overpaying for investment advice or investing in dubious asset classes, can have far worse consequences.

Of course, advice is available, but while employers could find some of the best consultants available and spread that knowledge and benefits over thousands of workers, employees typically seek advice one on one, which is less efficient because it doesn’t scale across a large group of people, and can cost as much as 2 percent of the employee’s assets to get solid, if fairly generic, retirement advice. The problem of high-cost investments is discussed in detail in a later chapter, but unlike other goods and services, with investment advice you typically pay for the advice with the very savings you have, so high costs can make it hard to achieve your investment goals. This is unlike other purchases because with investment advice you are reducing your rate of return with the fees you pay in order to attempt to increase your rate of return – a direct contradiction. This is why keeping costs low matters.