Morningstar Advisor - August/September 2013 - (Page 52)
Morningstar Conversation
Don Phillips and John Bogle at the 2013 Morningstar Investment Conference
fixed? We need to be much stricter on
withdrawals. If we allow people to say, “I’ve
got a sick child and my wife wants a new
living room rug and I need to take some money
out.” How are you ever going to have a good
retirement doing that? Social Security wouldn’t
amount to anything if you could take your
money out whenever you felt like it. It’s just a
system that has too much flexibility.
Of course, I can’t resist saying, as I told
Frontline, that [consumers are] investing in the
wrong thing. That is, what do we know
about all of these thrift plans, 401(k) plans, and
mutual fund plans put together? We know
they’re indexers, because they own, as a group,
the entire market. There’s no way around this.
If you look at what they have in all those plans,
52 Morningstar Advisor August/September 2013
it looks just like the market. Probably has
an R-squared of 99, something like that, maybe
even 100.
By owning the market individually, they’re
assessed these substantial costs: 1%, say, for
the fund; fund turnover cost, 0.5%.; extra
charges by the companies, or by advisors,
or whatever it is that has replaced brokerage
loads. It comes to maybe at least 2% a year
total all-in cost. So investors are going to get
the market, less 2%.
is that we have a federal retirement board that
determines eligibility for a firm to get into
the retirement plan system. There would be
guidelines for a long-term focus and reasonable fees. You’d have to clear muster.
Phillips: You mentioned high costs and the
problem of choice. Yet when I look, most
of the money today in 401(k) plans is going into
target-date funds. The three big providers
all have costs substantially lower than what
you cite. Is the market, to some degree,
taking care of this problem, and what do you
The math is undeniable, so we need more
discipline, we need less ability to take money
out, and we need investors to do the right thing
in terms of their investment choices.
What I have recommended in my book
think of target-date funds?
Bogle: My first impression about target-date
funds is that they follow the philosophy
I’ve had as long as I can remember. That is,
Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2013
Morningstar Advisor - August/September 2013
Contents
Contributors
Letter From the Editor
Under Pressure
Has Your View of Bonds Recently Changed?
The Simple Life Cuts a Path to Prosperity
How Extended Is Your Bond Fund?
A Bond Contrarian Scours the Globe for Value
Investments á la Carte
Investment Briefs
Bond Market Behemoths
Shopping in the Digital Age
Shopping in the Digital Age
Diverse Crowd
Motor City Meltdown
Bond Convergence
Corporates Are Fairly Valued, but Opportunities Will Arise
A Legend Still Pines for the Good Fight
Greener Pastures
Forecasting Market Bubbles and Crashes
Forecasting Market Bubbles and Crashes
Home-Court Advantage
Overcoming Technophobia
These Funds Are Counting on Undervalued Sectors
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
What Price Advice?
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