If you’re overwhelmed and have no time, then sure, signing up with the ING guy without asking him in detail about fees or probing him when he side-steps your question on how he gets paid since he’s the only one who cold-calls new faculty is much better than doing nothing.
Which, of course, is exactly what I did. I went with the first and only vendor who knocked on my door. I’m not the only one– he visits many faculty who, by experience and training, should be more savvy about these matters than I. And, in my defense, first year professors are VERY busy. I knew doing something was better than doing nothing and I figured that I would figure things out later when I had more money and more time. I have both this summer.
(The other one of us chimes in: I actually don’t like ING for a variety of reasons. However, I found the TIAA-CREF guy to be very helpful when I threw myself on his mercy. He had a number of useful tools that helped me find out that I’m actually doing better than I thought. He also helped me set up another account for additional savings.)
My university has SEVEN potential providers. Vanguard is not an option. Two of them only provide annuities, so that leaves 5 different companies to figure out. Of those, 3 or 4 of them provide information online and the remaining must be called for information. I never called. I never looked at the information, so I never made an appointment with a nice TIAA-Cref person (or Fidelity person or etc.).
The Ing guy stopped by with all his forms. I asked him for a target-date fund. Ing didn’t have them yet. I asked for low-fee index funds, and we talked about percentages. Some percent large cap, some percent small cap, some percent international, and a small percent in bonds based on the rest of my holdings. I already had some international exposure through an IRA (back when my risk-seeking father was making IRA choices for me) so we didn’t put any of that in my account, but did put some in DH’s. I think we ended up with a relatively diversified portfolio and I’ll probably keep something similar when I move over this year. It pretty well matches a diversified target-date fund for my age.
So what’s the problem? Fees. Fees will eat your savings alive over the course of your working and retirement life. Turns out that in exchange for sending around the nice Ing guy, Ing charges an additional 0.7% on top of whatever investments you make. Individual funds also charge their fees, and each low-cost index fund wasn’t a nice Vanguard fund (those are in Ing’s portfolio, but apparently not available to me), but an Ing fund identical in every way to Vanguard’s except that it charged a fee of 0.75% instead of 0.18%. That’s 1.45% in fees alone.
How big is 1.45%? Consider that a common recommendation is to draw down 4% per year in retirement, give or take. Or that the stock market is predicted to get 7%/year. Or that savings accounts are currently getting something like 1%/year. Or that some financial planners charge 1-2% to completely take care of your finances for you.
Or, consider simply that I could get the exact same portfolio for 0.34% from TIAA-CREF, and if Vanguard were an option I could get it for 0.18% instead. That’s 1.11% more fees/year than my next best option, just for me to not to have to pick up the phone to set up an appointment and for a one sheet desk calendar at Christmas. (And who knows, maybe TIAA-Cref will send a calendar too). That difference in fees was somewhere around $450 for me this year, and over $300 for my husband. $750 would buy a really nice gas grill. Next year, with regular contributions (and not too much stock market tanking) it would cost me even more. By the time I retired… oh, it is unthinkable. It is definitely time to make a change.
Next up: A long post on how DH and I spent 8 hours together on a recent Friday.