Frontline Spills The Beans On Mutual Fund Fees, Talks About Retirement Income Crisis (Video)

Whoa, FRONTLINE just spilled the beans on mutual fund fees in 401(k)s. Mutual funds, which have hopefully outperformed the S&P 500 Index (beta) since 2008, are destroying investors' compounded returns with their high fees. It is pointless if mutual funds can't outperform low-fee passive indexes (their benchmarks) over the long-term before and after fees. Long-only actively managed mutual funds have been investing in a secular bear market since 2000, so it's been a volatile ride for most mutual fund investors. To put this in perspective, the 30-year U.S. Treasury bond has outperformed the S&P 500 by 7% since April 1998.

30-year Treasury Bond vs. S&P Since April 1998 (stockcharts.com)

The S&P 500 (+10% since April 2000, +10% since April 2008, and +80% since April 2009) has essentially been a non-risk free savings account for investors during this 4.2 year up cycle (cash payouts matched the inflation rate and SPX priced in the diluted money supply). At this point, it would be nice if higher short-term risk free interest rates were available to retirees. Unfortunately, savings account rates and short-term yields have become a victim of the Fed's zero percent interest rate policy (ZIRP) since the 2008/2009 financial crisis and bank bailouts, which has forced money into "risk assets" like stocks and high yield bonds to make a real return (with help from the Fed's QE program indirectly pushing up asset prices with new printed money).

During the "Tyranny of Fees" segment, Jack Bogle, founder of Vanguard (who recently said to "prepare for at least two declines of 25-30%, maybe even 50%, in the coming decade" via CNBC/Business Insider), said,

"What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compounding costs. It's a mathematical fact. There's no getting around it. The fact that we don't look at it, too bad for us."

"Do you really want to invest in a system where you put up 100% of the capital - you're the mutual fund shareholder -, you take 100% of the risk, and you get 30% of the return."


Watch The Retirement Gamble on PBS. See more from FRONTLINE.

h/t InvestmentNews

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