For an entire generation, the golden age of television was the 1950s. Its effect on how Americans spent their leisure time was as culturally revolutionary as radio had been a generation earlier....Customer choice, as we now think of it, simply didn’t exist.
By Will McGough on December 16, 2019
For an entire generation, the golden age of television was the 1950s. Its effect on how Americans spent their leisure time was as culturally revolutionary as radio had been a generation earlier. Enjoying television at this time was also quite simple: Acquire a set, switch it on, and tune the dial to one of three networks. While programming was on the fast track toward filling every hour of the day this was still the era when stations would ‘sign off’ at the end of their broadcast day. Sometimes this was midnight; sometimes even earlier! Also, your choices were always limited to what was being broadcast at the moment. Customer choice, as we now think of it, simply didn’t exist.
Fast forward to today. With the advent of high-speed Internet access and a seemingly never-ending flow of streaming media devices and channels the way people experience television has drastically changed. With access to unprecedented amounts of user data, from the very generalized to exceedingly granular, programmers can now not only craft entertainment for even the most specialized taste but also suggest programs based on user behavior. It’s not difficult to observe the ready parallels between the way 21st century entertainment is created and delivered and how a modern 401(k) plan can be better crafted for investors.
We can all agree that technology impacts our daily lives in ways we never imagined, but very often the average 401(k) investor is stuck in the limited choice world of the ‘50s, so to speak (yes, we know the 401(k) didn’t exist until 1978 but you get our point). Most of the time, the retirement investor is only able to invest on a single Target Date Fund. Across the retirement industry fees have come down but real choice—offered according to an individual s time horizon and risk tolerance—has yet to appear.
Let’s use ubiquitous NetFlix as an example of our new media age. The average user appears quite happy to pay a mere $12.99 or so a month for access to thousands of choices. If we spent the same on our 401(k), and had $100k invested, this would be about 15 basis points per year… about the cost of an often mandated one-size-fits-all allocation in the Vanguard Target Dates (which range from 13-15 bps).
With the average 401k balance being around $30k, that same monthly spend on Netflix is around 50 basis points.
With the launch of Vanguards new robo technology which has set the entry level price at 15bps for service along with some managed account providers using technology to scale costs downward of 10bps—there are no more excuses. It’s time for 401(k) plans to allow for personal choice to better meet their needs for retirement saving.
But if you are like me and have yet to convince your family to make the switch from having to connect your TV to a cable outlet in the wall, things get more extreme. We pay our cable provider around $170/month. All the while I’m thinking “My 401(k) could be almost $1.5 million bucks and I’d gladly pay 15bps to Vanguard if they offered a variety of choices like streaming services stuck in the fee in-compressed world!” But, since my family has not yet made the full switch to choice-on-demand I’m left guessing my wife would still be invested in a bunch of active mutual funds had we never met!
Author: Will McGoughChief Investment Officer of Retirement Will McGough joined Stadion Money Management in 2003 and currently serves as Chief Investment Officer of Stadion’s Retirement investment strategies which comprises oversight of Stadion’s risk-based, target date, and managed account strategies. He is a member of the Investment Committee and Senior Management team, and serves as as Stadion’s Chief Investment Officer, Retirement. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Will received his BBA in Finance from the University of Georgia and also holds the Chartered Financial Analyst designation. Will is a member of the CFA Institute, the CFA Society of Atlanta, the American Association of Professional Technical Analysts, National Association of Active Investment Managers, the UGA Alumni Association and National Eagle Scout Association.
There is no guarantee of the future performance of any Stadion account. Material has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Results based on available universe of Target Date Fund Series, which includes registered mutual funds, and non-registered collective investment funds and insurance accounts. Collective investment funds and insurance accounts are only available for investment to qualified retirement plan assets such as 401(k) plans.
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