Category : 401k

There is no check engine light for your retirement account

When is the last time you opened the hood of your car and looked at your engine?

If you are like me the car would need to be billowing smoke, dead, or squealing like a cat got caught in the fan belt. And I’m being honest, even when I do look, it’s a mysterious and complicated set of cables and parts that I just don’t really understand.

I imagine most other Americans feel the same way. And when it comes to the average individual dealing with their 401k options and making decisions they’re often staring at a set of complicated and mysterious set of choices that are just plain hard to understand.

Unfortunately, 401k investors are perfectly fine making “educated guesses” where to place their hard earned money, but none of us would guess at where the oil goes and then blindly start filling up different parts of the engine.

So why is it that hard working Americans are more likely to get help changing their oil than managing their investments?

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Technology Provides the Next Frontier in 401k plans

Did you know that of the 20,000+ individual 401(k) accounts that blooom has analyzed, over 80% were invested incorrectly? Yea, that’s right…over 16,000 people didn’t have the right investments in their account.

What that tells us is that the current system that employers have in place for plan participants is not working. Technology now has provided a solution to this problem through online investment management services, commonly referred to as Robo-Advisors, such as blooom.

Blooom is a low-cost, Registered Investment Advisory online service created to help improve the way average Americans manage their 401(k) retirement plans. In just five minutes, the blooom assesses a client’s 401(k), including hidden fees, from start to finish and provides ongoing professional management for as little as $5/month.

It is predicted that by 2020 the amount of money personal investors will invest through the use of technology will grow by 68%. In this Podcast blooom’s CEO, Chris Costello, talks about how technology is revolutionizing the 401(k) space and how important it is for employers to be at the forefront of providing this latest employee benefit to their participants.

Listen to the 401(k)Fridays podcast featuring blooom’s Chris Costello here.

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Why should 401k Advisors care about financial wellness?

Financial wellness…What exactly is it and what’s all the buzz about anyway? For starters, here’s a quick overview, along with three reasons why plan level advisors really should start taking financial wellness seriously.

Financial wellness is the state of personal knowledge and access to resources to plan for and help manage fundamental financial events, which everyone is likely to face – budgeting, saving, transacting, borrowing, protecting, and investing. The typical talking points about financial wellness revolve around how financial instability affects employees and employers – lost productivity, increased work comp, medical and disability claims, theft, turnover, etc. Important stuff?! Advisors SHOULD care, but so far it doesn’t seem like advisors are fully on board. Maybe it’s simply due to the fact that nobody’s honestly discussed how it affects your piece of the pie.

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John Oliver Hammers the 401(k) Industry - Why blooom Loves it

John Oliver Hammers the 401(k) Industry, and Here’s Why We Love It

By now you may have heard about or seen a Facebook or Twitter share of the recent segment on John Oliver’s “Last Week Tonight” show, which discussed our screwed up 401(k) industry. Not exactly something you’d expect to get a good laugh out of, but in typical fashion, Oliver was able to make a not-so-entertaining subject extremely entertaining with a heavy dose of sarcasm and dry humor. Our take? He nailed it.

At blooom, we’re what’s known as a fiduciary (more on this in a second), which Oliver points out is an important thing to look for when it comes to truly non-conflicted investment advice. We represent what we hope will become the new normal in the industry at some point, although we understand that a change of this magnitude will take time. But until then, there are certainly things you can do to help yourself, which Oliver did a great job highlighting. Here are our thoughts on the main takeaways and a few things we’d like to add.

1) The best time to start is now…or maybe yesterday.
This really just comes down to math, but the power of compounding really is pretty incredible. If you start early, you’ll need to invest far less to end up with far more in retirement. But as Oliver mentioned, not everyone is in the position to save for their retirement. So how do you know if you are?

First and foremost, if you have a 401(k) at work, do whatever you can to contribute up to the full amount your employer will match. From there, here are your priorities from our point of view:

• If you have credit card debt or student loans, don’t contribute a dime more than the full match amount until that is paid down.
• If you have no debt and have enough in an easily accessible savings account to cover at least three months of your living expenses, contribute as much as you can above your employer’s match and get in the habit of increasing contributions by 1% each year until you’ve reached the maximum the IRS allows ($18k if you’re under 50, $24k if you’re over 50).
• If you don’t have a 401(k) at work but have no debt (other than mortgage) and an emergency fund that can cover three months of expenses, look into an IRA and reach out to one of our advisors for some direction on how to open one if you need it.

2) Use low-cost index funds and don’t pay attention to the markets
Not surprisingly, the vast majority of financial institutions continue to market high cost, actively managed products like they somehow perform better and are therefore better investments for their clients. Yet all the evidence seems to prove otherwise. And the case for low-cost passively managed index funds only gets stronger every year.

Instead of trying to beat the market or paying a fund manager a hefty and largely hidden fee to try really really hard to beat the market for you, just ignore the stock market and use an index fund, when possible. Investing for retirement is about retirement, not what the market does in the next week, month, or year. Stick to a long-term disciplined approach, or as Oliver says, “If you stick around doing nothing, while everyone around you f*&%s up, you’re going to win big”. And we don’t have to just take his word for it. John Bogle, founder of Vanguard, along with dozens of other investing icons, famously makes the exact same argument, albeit usually without an f-bomb.

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The Fiduciary Rule and Financial Technology

It didn’t take the DOL ruling (“Final Rule”) or a report by Cerulli Associates for blooom co-founders, Chris Costello and Kevin Conard, to understand that more than 70% of investors are missing out on access to much needed investment advice. According to reporting in WealthManagement.com the new Cerulli Associates report indicates that approximately 90 million households in the U.S. have less than $100,000 in investable assets (approximately 70% of investors), which is a threshold some advisors are using to judge applicable clients.

The robo-advisor space has been able to demonstrate that technology not only provides the ability to scale professional financial advice, but also the ability to do so at the fiduciary level. In a recent Time Op-Ed piece, The Retirement Risk We All Share, blooom’s president, Greg Smith, explained that presently, in a world where pensions are gone and the future of social security is an enigma, too much is riding on employer-sponsored accounts not to implement a fiduciary standard around their management. Pointedly, he states, “[i]n a world where we are left to fend for ourselves in retirement, the stakes are too high not to at least make sure that someone is legally obligated to tell you the right thing to do.” And robo-advisors are positioning themselves to be exactly that “someone”.

And yet, some in the industry continue to suggest that a “robo” cannot replace that “someone” and therefore, will ultimately fail. The key to success with the so-called robo provider is speaking in a language the average investor can understand and making available direct lines of communication with the client. Investors, at all asset levels, want to know their best interests are put first and that there is a trusted source taking care of their nest egg.

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