Bogleblog interview on retirement plans

[Telly]

http://www.pbs.org/wgbh/pages/frontline/retirement/interviews/bogle.html

Very good reading. 

I don't think ALL of this interview was in the PBS Frontline show. 
If all of it WAS on the show, then I'm getting a lot more out of it by reading it, than hearing it speed by on TV!

 

[Sam]

Wow!  Mr. Bogle appears very knowledgeable about mutual funds.  He ought to be, being the founder of Vanguard.  But I have a very hard time believing the following:

Quote:
...  If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow in that 65-year period to around $140,000.

Now, the financial system -- the mutual fund system in this case -- will take about two and a half percentage points out of that return, so you will have a gross return of 8 percent, a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000. One hundred ten thousand dollars goes to the financial system and $30,000 to you, the investor...
EndQuote

Is it true?  It's so hard to swallow that.

 

[d]

it is true that under the assumptions specified that the investor will gain approx $30k rather than $140k, but as you suggest, it is not strickly true to conclude that the "financial system" gets the difference.  It is true that the "financial system" has cost the investor about $110,000 ... but that's an opportunity cost compared to a "cost/expense free" investment returning the full 8%.

Consider as well, that if the investor is getting 5.5%, returning a total $30k, then the remaining 2.5% can't deliver a total $110k.

 

[Texas Proud]

Yes, it is true... I just did the calculations and the difference between an 8% return and a 5.5% return is $110,000 to $115,000...

D... I think the point he is trying to make is that the 'financial industry' is taking the money. It is not an opportunity cost as that would indicate nobody got the money. He is saying the brokerage house, the transfer agents, the ad agencies, the mutual fund advisors etc. etc. are all taking a piece as they have to be paid for their work.... and that this work cost about 2.5% a year. If we got rid of most of this unnecessary stuff, you would be much closer the the market 8% and the $140,000.

Even if we reduced the total cost to only 50bp, the total difference is about $38,000.

 

[d]

Texas:

but note again: if the investor is getting 5.5%, returning a total $30k, then the remaining 2.5% can't deliver a total $110k.

Indeed, if the "financial industry" is earning 2.5% on the growing investment, that totals, after 65 years, to about $14k ... a far cry from $110k.  We'd get to that $110k only if the 2.5% is accumulated and reinvested at 8%. Doing so would suggest that the "financial industry" gets its share, but incurred no expense in doing so.

my point is simply that conclusion is an overstatement as to how much the "financial industry" is getting ... no argument as to how much the investor has missed.