34 • MARTIN H. RUBY
Here’s the thing. If your 401(k) or IRA is invested in mutual funds (and most of them are), this is going to be your experience. Most mutual funds do not beat the S&P 500®, and the numbers above don’t take into account expenses, either. I’ve seen this problem firsthand. My oldest daughter graduated from college in 2001 and started saving just as the market was crashing. Her account has followed the performance of the market pretty closely. She has earned an average of about 5 percent per year in the time she had been sav- ing. Her 401(k) plan charges around a 1 percent management fee. And subtract another 2 to 3 percent for taxes. Net to her, she has earned about 2 to 3 percent this century on her savings. That’s simply not enough to fund her retirement goals. It’s causing her a lot of sleepless nights. Like you, my daughter is depending on the market to grow her nest egg. She’s coming to realize, unless something changes, the market may not be able to give her enough forward growth to fund the retirement she wants. Let’s face it: the market of today isn’t the market of the 1990s. No one is throwing darts and hoping for great stock returns. Low Interest Rates and You So if the stock market is too risky a way to grow your money, how else can you grow it? Traditionally, people have used “safer” alternatives, like CDs, money market funds, and even basic savings accounts to grow money they want to keep safe. My son-in-law is a great example of this. He has no tolerance for losing money, so a big portion of his 401(k) is invested in government bonds, a very secure asset that’s unlikely to lose money. Despite having $50,000 in his 401(k), last year he earned just $1,200. Why? Because low interest rates have dampened the return he can get off safe vehicles like govern- ment bonds.
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