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Gain valuable insights on retirement investing from LSU Faculty Senate Workshop. Learn about diversification, avoiding overwhelm, performance traps, cost considerations, and the do-it-yourself approach to secure your financial future. Get expert tips on managing your investments wisely!
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LSU Faculty Senate Workshop April 19, 2016 Don Chance, PhD, CFA James C. Flores Chair of MBA Studies & Professor of Finance Retirement Investing: The Five Most Important Things You Need to Know
And Here They Are: • Diversify • Do not be overwhelmed or impressed by the choices • Do not get caught up in performance • Cost is everything • Do it yourself Don Chance - LSU Faculty Senate Workshop
Diversify • “Don’t put all of your eggs in one basket” • But – how far should you go? • Can you get over-diversified? Too many eggs in one basket? Don Chance - LSU Faculty Senate Workshop
Do not be Overwhelmed or Impressed by the Choices • Investment choices • Mutual funds • Individual stocks & bonds • ETFs (exchange-traded funds) • Size, value, global/emerging, retirement date, asset allocation, blended • There is an enormous amount of duplication, repackaging, and just plain clever marketing Don Chance - LSU Faculty Senate Workshop
Do not Get Caught up in Performance • Money chases money • There is no performance consistency, because … • No one consistently knows what the market will do • Every time you chase performance, you give them money • Performance is fleeting Don Chance - LSU Faculty Senate Workshop
Cost is Everything! • What are the components of the cost? • Fund management and administration • which includes commissions, bid-ask spreads • the funds pass on this cost to you, and, • most people pay too little attention to cost Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) • Assume you deposit $5,000 in 1980 and increase it by 5% a year through 2015 • That would add up to about $508,000 saved • Look at how much money you would have under the following alternatives: Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) • Over 35 years, after accounting for the interest you could have earned on your money, you invested a total of $906,659. • After accounting for compounding, the mutual fund companies took the following: Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) • LSU ORP (alternative to TRS) • Three fund companies (TIAA, Voya, VALIC) • 82 fund choices • Average cost: 0.38% • Maximum cost: 1.14% • Minimum cost: 0.04% • These are pretty good choices Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) • LSU Supplemental (403b & 457) • Six fund companies (TIAA, Voya, VALIC, MetLife, Fidelity, Empower) • 316 fund choices • Average cost: 0.74% • Maximum cost: 2.21% • Minimum cost: 0.04% • Some good choices but too much expensive junk Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) • Homework • Identify which funds you are in • Go to http://www.lsu.edu/hrm/ • Choose “Employee Benefits” • Choose “Additional Employee Benefits – Retirement” • Choose “ORP Vendors” • For each vendor, click on the link that mentions “Fund Performance” • Compare the cost of your funds to 0.7% Don Chance - LSU Faculty Senate Workshop
(Cost is Everything!) • Homework (continued) • Back to “Employee Benefits” • Choose “Additional Employee Benefits – Supplemental Retirement” • Choose “ORP Vendors” • For each vendor, click on the link that mentions “Fund Performance” • Compare the cost of your funds to 0.7% Don Chance - LSU Faculty Senate Workshop
Do It Yourself • Buy and hold • Invest steadily, as long as you remain confident of the long-run performance of companies • Resist the temptation to trade frequently • Ride out the storms, if you can stand it Don Chance - LSU Faculty Senate Workshop
To Recap • Diversify • Do not be overwhelmed or impressed by the choices • Do not get caught up in performance • Cost is everything! • Do it yourself Don Chance - LSU Faculty Senate Workshop
Many thanks! Don Chance - LSU Faculty Senate Workshop