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Clearly the industry guys don't understand the target audience for this. Just think back to the first time you started with a mutual fund, let alone a regular contribution scheme outside of a 401k and imagine now a completely financially naive person doing this. And you were probably an exception in aptitude and interest in learning or got burnt in the very first investment.
They don't know an IRA from an iPad let alone a Roth.
They wouldn't know who to call to set up things.
Even if they did, they would all invest in the most expensive and mediocre fund their first banker or broker they talked to rather than understand that there are such things as low cost, low volatility etfs or funds.
They would stop contributing the first time, a fund that promised them more than the GIC went down 5 or 10%.
Instead of the industry panicking about money being parked outside their fee structure, they should be thinking about products that will cater to that $15k coming out of that savings plan with allocation funds. The biggest threat to the industry is that people would have achieved a bit of financial literacy and discipline by the time they have saved that $15k that they would not fall prey to exploitative brokers and funds.
Exactly, Cman. The percentage of the population who would benefit from the MyRA who read Mr Jaffe: uumm, 0.01%, maybe. The percentage who would benefit from the MyRA who now have a low minimum mutual fund with monthly deposits? Any guesses? I'm guessing < 1%. I'd switch the MyRA to the mutual fund at a lower total, but perhaps Mr. O and his advisors felt the fund companies wouldn't want the small amounts. Switch them all to Vanguard 60/40 at $3K and let the lamentations begin. (That would require V to accept small monthly contributions, but, with an eye to the future billions, I bet they'd be receptive.)
Reply to @STB65: What if they invited fund families in the future to participate in this instrument at 3k levels with allocation or target funds chosen based on the lowest cost?
It will drive both mutual fund industry folks and political ideologues into epileptic fits!
I'm guessing Vanguard doesn't lose money at the $3K minimum. Others would probably make less than they want, but more than they need. Might not be a feeding frenzy, but there would be companies ready to deal and to offer frills that would add to profit. It will only take one or two to break ranks and reasonably priced target funds will suddenly be accessible. Other fund options to baffle and extract higher ERs from the unwary will abound, but something is probably better than nothing. If the options could be limited to target funds and a limited number of indexes or index combos, with limits on fund switches, the contributors might really benefit.
Comments
They don't know an IRA from an iPad let alone a Roth.
They wouldn't know who to call to set up things.
Even if they did, they would all invest in the most expensive and mediocre fund their first banker or broker they talked to rather than understand that there are such things as low cost, low volatility etfs or funds.
They would stop contributing the first time, a fund that promised them more than the GIC went down 5 or 10%.
Instead of the industry panicking about money being parked outside their fee structure, they should be thinking about products that will cater to that $15k coming out of that savings plan with allocation funds. The biggest threat to the industry is that people would have achieved a bit of financial literacy and discipline by the time they have saved that $15k that they would not fall prey to exploitative brokers and funds.
I'd switch the MyRA to the mutual fund at a lower total, but perhaps Mr. O and his advisors felt the fund companies wouldn't want the small amounts. Switch them all to Vanguard 60/40 at $3K and let the lamentations begin. (That would require V to accept small monthly contributions, but, with an eye to the future billions, I bet they'd be receptive.)
It will drive both mutual fund industry folks and political ideologues into epileptic fits!
Others would probably make less than they want, but more than they need. Might not be a feeding frenzy, but there would be companies ready to deal and to offer frills that would add to profit. It will only take one or two to break ranks and reasonably priced target funds will suddenly be accessible. Other fund options to baffle and extract higher ERs from the unwary will abound, but something is probably better than nothing.
If the options could be limited to target funds and a limited number of indexes or index combos, with limits on fund switches, the contributors might really benefit.