Contact Your Financial Adviser Money Making MC
26
March 2018
 |
Warren Buffett(The Total Investment & Insurance Solutions)
Warren
Buffett, the most successful investor of our time, is a huge fan of low-cost
index funds — funds that replicate a market index rather than try to outperform
it — as the way for the average investor to succeed in the stock market. “By
periodically investing in an index fund … the know-nothing investor can
actually outperform most investment professionals,” he wrote in his 1993 letter
to shareholders of his Berkshire Hathaway conglomerate. “Paradoxically, when
‘dumb’ money acknowledges its limitations, it ceases to be dumb.”
He
returned to the subject in this 2016 letter, writing, “Both large and small
investors should stick with low-cost index funds.” And in his newest
shareholder letter, Buffett said that one reason he made a widely publicized
bet (which he has now won) that a low-cost Vanguard index fund would outperform
a group of hedge funds over a 10-year period was “to publicize my conviction
that my pick — a virtually cost-free investment in an unmanaged S&P 500
index fund — would, over time, deliver better results than those achieved by
most investment professionals, however well regarded and incentivized those ‘helpers’
may be.”
Given
Buffett’s praise of index funds — specifically, those with low fees — you’d
think that all the employees at Berkshire Hathaway companies would get to
practice what the boss preaches by being able to invest their 401(k) money in such
funds. The Total Investment &
Insurance Solutions
But
you’d be wrong.
It
turns out that employees of many Berkshire subsidiaries have the same problem —
and it’s one that, as we’ll see, also affects millions of Americans outside of
Buffett’s companies. To wit, your employer, not you, chooses your 401(k)
investment options and your choices may be less than optimal either because
your employer doesn’t know any better or because your employer’s interests are
different from yours.
You
wouldn’t expect to see this problem at a company run by a brilliant investor
like Buffett, but it’s there. I’ve looked at the retirement plans of each
Berkshire subsidiary whose investment options I could find on file at the Labor
Department, which turned out to be about 50 of the 63 subsidiaries listed on
Berkshire’s website. The Total
Investment & Insurance Solutions
Each
offers its own investment options rather than having Buffett or someone else at
headquarters pick a package of suitable company-wide investments. That’s not
surprising in one sense: Buffett is famously hands-off in how he oversees the
companies owned by Berkshire.
But the
result is that many of the subsidiaries offer little or nothing in the way of
index funds. And even when they do offer such funds, different Berkshire
employees can end up paying wildly divergent fees for the same investment,
depending on which operation they work for. Those differences can cost — or
save — them tens of thousands of dollars over the course of decades.
Consider
two examples that I got from a list assembled by Eli Fried, an investment
consultant who advises pension and endowment funds and is the person who
brought the Berkshire disparities to my attention. Fried told me he was looking
at 401(k) investment options offered by the top companies on Fortune’s list of
most admired companies and was surprised by what he found at Berkshire. The Total Investment & Insurance
Solutions
On the
index fund front, there’s a big difference between the S&P 500 index funds
that employees of Berkshire-owned NetJets, General Re, GEICO, FlightSafety,
Clayton Homes and H.H. Brown Shoe Group can buy, and the one that BoatU.S.
employees can buy. BoatU.S. employees pay a fee of 0.62 percent, or $62 a year
for a $10,000 investment. That’s more than 15 times the 0.04 percent — $4 a
year per $10,000 — that employees of the six other Berkshire companies pay.The Total Investment & Insurance
Solutions
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