Adam Zoll: Thanks to everybody for coming out tonight to talk about the topic of 401(k) retirement plans. As you know, the name of tonight's presentation is how to make the most of your 401(k), 403(b) or 457. We generally use the term 401(k), but the other retirement plan types, 403(b) and 457, are very similar. When you hear us talk about a 401(k), but you have a 403(b) or 457, generally what we're saying will apply to you also.
Tonight's presentation is structured around four key questions to ask in order to help you get the most out of your 401(k). But before we do that, let's review some of the advantages of a 401(k) plan to remind ourselves of why we're here talking about this topic.
A 401(k) has the advantage of giving you a direct payroll deduction in order to fund your retirement, which is an easy and convenient way to save. The money never makes it in your pocket, therefore, you're never tempted to spend the money, and that will apply some good sort of behavioral discipline as you go along and save over the years.
Your employer may provide matching funds that help your retirement savings grow faster. We'll talk a little bit more about matching funds a little bit, but this is essentially your employers giving you free money to save for your own retirement, which is pretty darn good deal.
Number three, earnings in the account grow tax-free or tax-deferred, which is also an advantage. You do not have to pay taxes on the money as you go year after year. Again, this allows your account to grow faster. And you get a tax break when you contribute to the plan if you're using a Traditional plan type, or when you take the money out if you're using a Roth plan type once you reach at least age 59 1/2. These are more tax advantages tied to the 401(k) structure that you can take advantage of by saving over long periods of time.
As I mentioned we've structured tonight's presentation on these four key questions. I'm going to take the first two and then [Morningstar director of personal finance] Christine Benz is going to come up here and take the second two. The questions are:
- How good is my plan?
- Are my savings on track?
- How should I allocate my 401(k), 403(b), or 457 assets?
- What do I do with assets once I leave my job?
Our first question is: How good is my plan? It is a pretty important question. Some of the things to consider are the fund lineup available to you. The fund expenses, plan expenses, the company match, the Roth 401(k) option, and the availability of additional help. We're going to take these one by one to discuss what you need to be watching for.
At a minimum, your employers' plan should include the following basic fund types: a U.S. large-cap stock fund, a U.S. small-cap stock fund, a foreign-stock fund, and a bond fund. So these are the basic building blocks of a diversified retirement portfolio. Remember that you're saving, in many cases, over decades, and you want to have that well-diversified portfolio that is going to be able to cushion you if things go wrong in a certain segment of the market. If things go wrong with foreign stocks, for example, you don't want all your eggs in that one basket. You certainly don't want all of your retirement savings or too much of your retirement savings in your company stock, which a lot of people have found out the hard way is not a good investment strategy. You really want to be able to spread yourself broadly so that you're covering lots of different pieces of the market. Christine is going to be up here a bit later to talk about asset allocation, and she will talk about that in greater depth.
Index funds are a component of many 401(k) retirement plans. One of the big advantages of index funds is they're generally a lot cheaper than actively managed funds. Just briefly, if you're unsure what we mean when we say index versus actively managed, an index fund is a fund that essentially tracks an index of stocks or bonds of specific types. So, you may invest in a large-cap stock index or an index of U.S. investment-grade bonds, whereas an actively managed fund has a manager who is actively picking and choosing specific securities to invest in that he or she thinks are a good investment. That sort of active management approach is generally more expensive; tracking an index is a lot less expensive. And keeping your investment costs low is a pretty key component to having a successful retirement savings experience.
Many 401(k) plans have very few index options, unfortunately. Some things to watch for as you sort of do your due diligence on your own plan: Are index funds available, how many of them are there, and if you're interested in using index funds, how can you build your portfolio? Are the plan's offerings going to meet your needs?
Another very popular component of 401(k) plans is the target-date fund, which some of you may be familiar with. This is basically an all-in-one diversified portfolio that you can get by owning just one fund. I kind of think of a target-date fund as two different valuable pieces. One is this diversified portfolio, the other piece is that the allocation between stocks and bonds and cash changes over time so that the closer you get to your retirement date, that is automatically rebalanced for you. It's really kind of one-stop shopping for many investors who don't want to be bothered with rebalancing on their own, rebalancing their portfolios themselves, and maybe aren't sure exactly what investments are good for them. A good target-date fund can take care of that for you, and in fact, these days many employers are auto-enrolling, automatically enrolling their employees, in target-date funds that are age-appropriate for the employees. So they're really growing in popularity.
Fund expenses. Here what we're talking about are the expenses charged by the fund itself in order to do the investing on your behalf. So these are the expenses charged by the mutual fund as opposed to the expenses charged by the 401(k) plan, which we will get to in a moment. So fund expenses will appear on your plan documentation that you receive probably about once a year that sort of describes the layout of your plan. And these expenses are expressed as a percentage of assets and also as a dollar amount per $1,000 invested. So, if you're invested in a fund that charges 1% of assets as its expense ratio, then you're paying $10 per $1,000 invested. As a very general rule of thumb, an actively managed fund should charge no more than about 1% and an index fund no more than about 0.25%.
And I should also mention, I forgot to say at the top, we're hoping to have time to answer your questions at the very end. So, if you do have questions that come up as you go along here, please save them for the end and then we will address those.
On to plan expenses. So these are the expenses charged by the plan provider to deliver services such as record-keeping, customer service, and administrative costs associated with the plan. These are not the investment costs; those are the fund expenses. These are really just kind of running and maintaining the plan.
Finding out what your plan expenses are can be a bit tricky. There have been some new transparency rules that have come on line in the past year or two that frankly are not as robust as I and a lot of other people would like. You may be able to discern from this plan document how much you're paying to participate in the plan itself or you may need to do a little investigating and the contact the plan administrator and ask that question. But trying to get a handle on how much being involved in the plan is costing you can be a really good thing to do to make sure that you're able to keep all of your investing costs as low as possible.
You also want to find out in your plan about fees that are charged for services such as using the plan's brokerage window. A brokerage window is basically a brokerage account that is set up within your 401(k) plan. If you don't like the fund lineup in your plan, you can use this brokerage window to invest in a much broader variety of stocks, mutual funds, and exchange-traded funds, through the brokerage. However, there is usually a maintenance charge associated with this and quite possibly commissions associated with those trades. Usually you're adding expenses by using the brokerage window. It can be a good way to sort of broaden your horizons if you don't like the fund lineup.
Also, taking out a loan from your plan entails some fees that are involved. If that's something that you think you may need to do at some point, that's something that is important for you to understand with regard to how your plan works.
When we get to plan expenses, a key thing to keep in mind, I think, is the size of the employer. The smaller-company plans tend to cost more for participants than larger-company plans. This is basically because larger-company plans enjoy an economy of scale. The infrastructure of the plan and also some of the funds themselves that require larger asset bases, these things offer a cost savings there that larger employers often enjoy that they can pass down to their plan participants. A small employer doesn't enjoy that cost advantage and will very often need to pay more for the plan. The employer may pony up most of those expenses or they may pass them on to the plan participants. But if you are involved in a smaller plan, I'd really encourage you to take notice of what we're talking about here because the variety of fund expenses, I find from my research, is much broader among smaller plans than among larger plans.
And to illustrate some of those discrepancies--and this includes both the fund expenses and the plan expenses rolled together--a survey that was done in 2011 found that median expenses for plans with fewer than 100 participants were 1.29%. For plans with 10,000 or more participants, the median was just 0.43%. And when you see these numbers, obviously the smaller-company plan is higher, but you may say, "Well it's less than 1%. That doesn't strike me as a big deal." But the fact of the matter is, these small percentages when compounded over time over decades actually add up and can mean a difference between tens of thousands of dollars in your portfolio, which is just another reason why we are constantly here at Morningstar emphasizing keeping your investing costs as low as possible because it really does add up down the road.
The company match we mentioned a moment ago. This is the money that the company is contributing to the plan on your behalf. There are lots of different ways that this can be done. Typically one of the most common setups is that the employer contributes $0.50 for every dollar that you put into the plan, up to 6% of pay or maybe dollar for dollar up to 3%. There's lots of different ways that this can be done.
Make sure you understand how that works and also make sure you understand the vesting schedule associated with the company match, which is when the money that's matched actually becomes yours. Some companies, for example, have immediate vesting in some plans, which means that if you leave the company tomorrow, the money that's matched is yours. You have a right to take it with you when you go on to your next place. But other places have sort of a slower vesting schedule. Maybe you will get a portion of the money after your first year, all of the money after your second or maybe it will take three years or four years. Make sure you know how that vesting schedule works, so that if you do decide to change jobs you understand how much of that match you're entitled to take with you.
And even in a poor plan, that maybe has funds that are overpriced, for example, it often does pay to contribute at least enough to get the company match. In a dollar-for-dollar match, for example, it's basically like a 100% return on the money that you're putting in when you put it in, so it's definitely important to take advantage of that.
The Roth 401(k) option. Many company plans are adding these. This essentially allows participants to invest posttax money today in order to enjoy tax-free withdrawals in retirement. So that's very appealing especially for people, for example, who think that their income tax rate in retirement will be higher than their rate today. With the Roth, you're not getting that upfront tax deduction, but when it does come to retirement you'll know that you won't have to pay any taxes, which I think is kind of a liberating thing knowing you don't know what your tax rate is going to be in retirement. There's no way to know that especially if you're many years away from retirement. But it can be comforting to know that--hopefully unless something changes, which we don't expect--you're not going to have to pay any taxes on that money when you do withdraw it.
If you are sort of uncertain about whether to use Roth or not, in many cases you are able to use both: a Traditional 401(k) and a Roth 401(k) plan. And that's what we refer to as tax diversification. It's sort of hedging your bets in terms of what the future is going to hold as far as taxes go.
Additional plan features to be aware of. Find out if your plan offers free investment advice. Many of them do. They have people available over the phone who can help you with information about some of the investment offerings, give you some other advice about allocation, and sort of help guide you through the process. Ask about plan rules for hardship withdrawals. Some plans offer penalty-free withdrawals for things like medical emergencies or even paying for a funeral. Some have a broader definition. You can take money out of your 401(k) to use for college costs or purchasing a first home. If you think if any of these are provisions that you may take advantage of, make sure you understand what your plan's rules are.
What do you do if your plan is bad? The first thing to do would be to talk to the company benefits department about where it falls short. Let's say that you don't like the fund lineup. It's not diverse enough or the funds cost too much. Talk to your benefits manager and say what is you don't like about the plan. If you have coworkers who feel the same way, all of you should speak up about it because the louder a voice you have, the more likely hopefully you are to have some success in getting your benefits department to change things.
If that's not in the cards, if the benefits department, it says, "We're not just not in a position to change our plan," consider saving at least enough in a plan to get that company match we just mentioned. Then you can take the savings beyond that and park it in an IRA of your own choosing. You get to choose exactly the funds you want. If you want to keep your expenses low, pick a cheap fund. If you want to use an index fund, you have that power by going the IRA route. And then if you max out your IRA and still want to save beyond that then maybe go back to your 401(k) and continue [adding monies above what you have already contributed].
Question two: Are my savings on track? Here are some things to consider. Number one the role your 401(k) plays in your retirement plan. Number two, how much you will need in retirement. And number three, road-testing your savings plan.
The role your 401(k) plays in your retirement plan. It is very easy to think of your 401(k) as "This is my lump of retirement savings," and thinking of it as sort of an isolation without thinking of it holistically, getting the big picture. But in reality your retirement savings may incorporate lots of different pieces, including an IRA and your Social Security. Maybe you're planning on downsizing your home and using the proceeds for living expenses, or these days we hear a lot about reverse mortgages for people who want to stay in their home while they're drawing income from it. Maybe upi have other savings pieces also, other savings maybe in a taxable account or other assets such as a vacation home or something you're going to sell.
Think about your 401(k) again more broadly. Make sure that you understand the role it plays in your total retirement picture, and don't think of it as just a separate piece from that.
How much you'll need in retirement. This is I think one of the hardest questions to ask in personal finance because there are so many moving pieces involved. And among the questions, the variables are the number of years until you retire, how much you've saved so far, your savings rate now and in the future, whether you will work in retirement, whether you have a spouse who is also saving, and when you will take Social Security and how much you will get from Social Security. There are lots of different parts.
It's really hard to know especially the further away you are from retirement, exactly how much you are going to need for it. One general rule of thumb that you may be familiar with is to try to save 15% of your pay including the company match in any IRA contributions. For many years this rule of thumb was to save at least 10% of your pay. However, since the recession you hear more and more people financial planners suggesting 15%. Generally this is sort of attributable to the fact that a lot of investors are more risk-averse now because of the downturn in '08.
So the less risk you're willing to take, the more savings you need to put aside. And also the uncertainty with regard to future stock returns--whether they're going to be at historical levels or maybe a bit less--again this is unknowable. You can't control what the market is going to do, but you can control how much you're going to save. Saving 15% probably can get you a lot closer to your goal.
However, even that rule of thumb is far from perfect. What I encourage people to do is to use a variety of online retirement calculators, especially those that allow you to put in a lots of different variables yourself, that allow you to say, "I want to invest this percentage in stocks. I currently have this much saved. I plan to save this much each year moving forward even to the extent of I assume this percentage of inflation, et cetera, et cetera." The more questions the calculator asks, generally I think the more reliable the results. But I wouldn't rely on any one retirement calculator. I would use at least three good ones and sort of see where they land you, where the overlap is, in terms of what it says about whether you are on track for retirement.
Also, these retirement calculators use their own different sets of assumptions. For example, some assume that you will need 70% of your pre-retirement income once you retire; some assume 80%. That's why I really recommend using a variety of them to find out whether you are on the right track.
If you want professional help in your retirement planning, you could consider a fee-only financial advisor. This is an advisor who doesn't make a living off commissions of things he sells you. He's maybe taking a percentage of assets or may settle for a flat-fee arrangement. But if you feel like it's worth it and you really want that expert help, by all means consider talking to a financial advisor.
Road-testing your savings plan. As you near retirement, and Christine is going to talk a bit more about what happens once you do get closer to retirement. But to try to get a sense of whether you are on the right track, you might use what's known as the 4% rule to see where you stand. The 4% rule for those who are not familiar with it is this idea that if you withdraw 4% of your retirement assets the first year that you stop working and then adjust for inflation every year thereafter, your portfolio, your assets should last well into when you would need them in your retirement.
For example if you have $500,000 saved and let's say you are a year or two away from retirement, look at what 4% of that amount would get you. So, 4% of $500,000 is $20,000. That, plus Social Security, is that enough for you to live on? If the answer is no, then you want to think about what else you can do. Some obvious answers are try to save some more while you can, consider working longer, or a combination of both. But this is a good way to sort of road-test before you actually go into retirement whether you have enough saved to get you where you want to go.
For questions three and four, I'm going to call Christine up.
Christine Benz: Thank you, Adam, and thank you all for being here. I'm going to tackle two more questions. One is a biggie, and that's how to allocate your 401(k) plan, and then the last question I'll tackle is what to do with that plan when you leave your employer, either because you are changing employers or because you retired. But let's get into how to think about allocating your 401(k).
Most people who have a 401(k) plan have access to at least two of the three following methods. The first one is to simply buy a target-date fund. As Adam mentioned, these funds are increasingly the default choice for people who do nothing and make no investment selections. You will be opted into a target-date fund. I'll spend a little bit of time talking about the varying degrees of quality of target-date funds.
The next method that you could use is to take advantage of some sort of automated advice engine that your employer has made available. Increasingly this is an option in 401(k) plans. I'll talk a little bit about how this works and whether you may want to take advantage of that sort option.
Finally, you could choose to go on your own and make your own investment allocations. This is sort of the traditional style of allocating a 401(k). What employers have increasingly found and plan sponsors have found, is that a lot of folks really don't have the aptitude for this job, that they would rather not spend their time and energy on making their own investment allocations. That's why the first two methods have become increasingly popular. But I'll talk about some of the pros and cons of each of these methods of allocating a 401(k).
Target-date funds, you may be familiar with them. This is simply the type of fund where you pick the fund that matches your anticipated retirement date, and the fund really does all of the heavy lifting for you. The idea is that, if you are retiring in 2045, you buy say Vanguard Target 2045, and the fund is set up to have an age-appropriate asset allocation that gets more conservative progressively as you get closer to that retirement date.
Morningstar's favorite target-date series are those from T. Rowe Price and Vanguard, but we also like that the Series from J.P. Morgan and American Funds as well. So, there are some really good target-date funds. I think that they are a decent option for people who really don't have the knowledge that they need to make good 401(k) choices.
One of the benefits is that novices can use these funds and come up with an age-appropriate asset-allocation mix. It enables you to take advantage of professional asset-allocation advice. So, the good providers have really invested lot of time and energy in coming up with the right asset allocation to keep people in their seats, so they are conservative enough so that people aren't so spooked by volatility that they want to get out of the finds, but they are also aggressive enough that they have decent return potential.
I think the biggest benefit probably of a target-date vehicle is that the participant has to do very little on an ongoing basis, and what we see when we look at investor behavior in target-date funds is a really benevolent cycle. So people tend to just kind of set it and forget it. They don't have to make many choices, and so in a year like 2008, which was a terrible market environment, what we saw was that most target-date fund investors stayed put in their plans. And as a result they stayed put in their funds, and the funds were actually doing the rebalancing for them.
In a year like 2008, it was a rare investor who felt like going out and buying stocks. But if you had a target-date fund, it was buying stocks for you. When we recently examined what we call investor returns, which are returns that are weighted by investors' flows into and out of the funds, what we found was that target-date funds fared very, very well from the standpoint. In fact the typical target-date fund investor actually had a 30% higher return than the fund's stated return, because they timed their purchases very, very well.
This is something we're monitoring, but I think, at least early data on the subject indicate that the target-date funds are kind of a home run in terms of helping investors monitor and sort of keep at bay their own worst behavioral instincts.
But they are not perfect. The big negative associated with target-date funds is that typically all the funds within the target-date lineup will be from a single provider, and there are very few firms that do a good job at everything.
I mentioned that Morningstar likes T. Rowe and Vanguard's target-date lineups, but a lot of firms don't field good funds in terms of international equity, domestic equity, and fixed income. Most firms just don't have great options in all of those categories. So, you have to pick and choose. If your plan does include a top-flight target-date fund, though, it will have some very good funds populating it.
One of the big drawbacks, too, and one of the reasons why you sometimes hear financial advisors say that target-date funds are one size fits none, is that the preset asset allocations won't always make sense for two people with the same retirement date. Think about the 50-year-old for example planning to retire in maybe 2020; that would be a person who would probably need a more aggressive allocation than the 65-year-old retiring in 2020. So, the preset asset allocations aren't going to fit for every investor who happens to have the same retirement date; that's a drawback.
Another option for allocating a 401(k), and this is an increasingly popular one, is to take advantage of some sort of advice engine that might be offered by your plan. The idea here is that you fill out a questionnaire usually about your risk preferences, about your other assets, about whether you have a pension, about your spouse's situation, and your spouse's assets, your anticipated retirement date, and so forth.
In this respect, these advice engines are more holistic than simply using an off-the-shelf target-date fund. They take into account some of these other things that might be going on in your life. Some of the plans will simply provide a set of recommendations for you based on your own inputs, others will actually go ahead and allocate the 401(k) for you based on the information that you've provided. And then once that portfolio is allocated, the plan will also keep it up-to-date and rebalance and do all that ongoing monitoring on an as-needed basis. This is similar to a target-date fund as a very hands-off choice for people who don't feel like they have a lot of aptitude or interest in managing their 401(k)s.
The pros are pretty similar to what you have with target-date funds; you don't need a deep well of investing knowledge to get into the sane asset-allocation mix giving your age and life stage. Usually these advice engines are free to participants; there's no extra charge associated with investing in this way. It enables you to take advantage of professional asset-allocation advice that is more customized than what you can get through a target-date fund. And again there are the limited upkeep requirements. I would think some of the behavioral benefits in terms of keeping participants in their seats and doing some of those counterintuitive things that investors often aren't inclined to want to do, I think those benefits would be there for people partaking in the advice engine, as well.
The cons are that target-date funds are not available at all. One reason is that there is an extra layer of costs to the employer to offer this benefit. So it may not be in your plan. Again the stock-bond mixes may not be perfect for your situation. You may have something going on that this advice engine did not pick up on. Maybe your spouse has his or her own business, for example. And so there's some risk they are that the advice engine just cannot take into account. They will not have a perfectly customized asset-allocation mix in the way that you might be able to get if he sat down with a financial advisor and he or she listened to what you and your spouse have going on.
The recommendations may not be 100% objective. They may be or they may not be. It depends on who the provider of this advice is. And the portfolio may suffer from what financial planners and advisors sometimes call diworsification. So that is having too many options. I think a lot of the time--and you can see this with target-date funds, too--the emphasis is on not screwing up. And so sometimes you see these recommendations might include, say, three mid-cap growth funds because they didn't want to pick the wrong mid-cap growth fund. They picked three just to spread their bets around. So that's a potential issue with these financial-advice-engine-type programs.
Allocating your own assets. As I said this is the traditional method of managing a 401(k) plan, and in this method you simply determine your own asset allocation. You populate it with your own choice of investment selection, and then the onus is on you to handle ongoing maintenance.
The pros of this strategy is that you can completely customize your program based on your own preferences. If you are someone with an investment philosophy--I know a lot of my fellow Morningstar workers, for example, have a value-investing style--you can impose that on your 401(k) plan. Or maybe you're an index enthusiast who really believes that using an all-index portfolio is the way to go. If you are allocating your own assets, you're free to impose those preferences on your plan.
The cons of course are that it requires some time and energy and knowledge to allocate your own 401(k) plan. And then the fact that you don't have some of the guardrails that are in place with advice engines or with target-date funds can sometimes lead investors to some of those behavioral mistakes. So frequently we would see performance-chasing; we'd see investors buying whatever has gone up a lot in the recent past. We've seen big flows into equity funds recently, for example. There just aren't those guardrails versus when you are using some sort of advice embedded in your 401(k) plan.
If you wanted to allocate your own assets there are some key steps to take. Asset allocation is by far the biggest decision you'll make about your plan, so what is a sensible stock-bond-cash mix given your life stage? The good news is that even if you're not inclined to use a target-date fund to invest in, you can still use it as a source of asset-allocation guidance.
I always tell people to check out the good ones and see how they are allocating their assets. Use that as kind of a lens for figuring out if you're in the right ballpark. You can also use Morningstar's Lifetime Allocation Indexes where you can see asset allocations for various life stages.
The next few slides have sample asset allocations. And one thing I would point out before we get into this is that I am a big believer in, and the data support, strategic asset allocation. That means you're using sort of buy-and-hold approach. You're not getting too fancy or tactical; you are not market-timing with that asset allocation. So right now, for example, you're not saying "I think stocks look expensive. I might start holding a higher percentage of bonds and cash." You are not doing that. You are pretty much just using a "buy, hold, and rebalancing program" and periodically getting that portfolio little bit more conservative as you get closer to your retirement date.
You can see for people just starting out--this is based on Morningstar's Lifetime Allocation Indexes--we've got very heavy weightings toward equities. The portfolio is majority in equities with a little bit in commodities and almost nothing in bonds. This is for people who are in their 20s and 30s.
As we step out into the 40-something range. You can see that we stay pretty aggressive, still. We start to have slightly higher allocations to fixed income, but still not very large at this point. The portfolio starts to step back in terms of global diversification, but overall it's pretty equity-heavy. This is a person who has 25-30 years or even more until retirement. So the idea is that you want to keep the portfolio pretty aggressive.
Into the 50s you do see that bond start to take up a greater role in the portfolio, and I apologize for those of you who can't see these allocations. You can see that the portfolio is about 70% equity for people in their 50s. Again, this is based on Morningstar's Lifetime Allocation Indexes.
But the bond piece is starting to pick up. We're also starting to build in a little bit of inflation protection by using some Treasury Inflation-Protected Securities in the portfolio. The commodities piece stays more or less static throughout the accumulation phase. So it stays around 5% or 6% throughout the period.
And then you can see even for people at age 60 and beyond we're continuing to stick with fairly high equity weightings. The equity weighting here for people in their 60s is about 41%; bonds are at 34%, including a little bit of global fixed income at this point, as well. And here, again, the portion that's invested in TIPS is picking up. The reason that TIPS piece picks up is that as you are no longer earning a paycheck, a portion of your income, the portion you're pulling from your portfolio, is not inflation-protected. So that means that the purchasing power of that portfolio can decline unless you do something to try to hedge against the bite that inflation is taking out of it. That's why we edge up the stake in TIPS as retirement draws close.
In terms of allocating your own assets, I think it's important to have a starting point for allocating your assets. That is looking at some of these off-the-shelf recommendations, but then thinking about customizing it based on your own situation. So one concept that my colleagues at Ibbotson frequently talk about--Ibbotson Associates is part of Morningstar--they talk about this concept of human capital. When you're working I think what that means is that you want to think about the type of career that you have and the volatility of your earnings stream.
The classic example of someone with a volatile earnings stream is a commissioned stockbroker. That's a person whose income is very much tied to what's going on in the stock market. That person needs a more conservative portfolio because his or her earnings stream is potentially very volatile. The flip side of that would be the tenured college professor. There's a person with a very stable income stream, probably a pension, in retirement. That person can afford to have much more volatile investment capital because the human capital is very, very stable.
So it's thinking a little bit about your own situation. Most people, unfortunately, will not have such black-and-white career paths. You probably fall somewhere in the middle. But it's still worth thinking about. If you feel like you are working in an uncertain field where your income is subject to potential disruption, it only stands to reason that you'd want to have more money set aside in safe investments in case, in a worst-case scenario, you need to somehow tap that money.
You also want to think about the presence of other assets in your life or in your spouse's life. So certainly if someone does have a pension as well as a 401(k) plan or maybe the spouse has a pension, you have a 401(k) plan. That probably calls for that 401(k) plan to be allocated a little more aggressively than would otherwise be the case.
Your spouse's asset-allocation choices should also be in the mix, so maybe you and your spouse both have 401(k) plans. Maybe you both have IRAs; my advice is to use Morningstar's X-Ray tool. It's a free tool on Morningstar.com where you can amalgamate all of your holdings together and look at that total asset allocation as a pie chart. The nice thing about that X-Ray tool is that it actually drills into your holdings and looks through them to see what they're composed of. So you might have a large-cap growth fund. If it has cash, X-Ray is going to pick up on the fact that it has cash; if it has mid-cap growth stocks, X-Ray will pick up on that. So it allows you to get that holistic view of your household's asset-allocation choices.
How much you've saved is also in the mix here. If you've saved relatively less, if you feel like you're playing catch-up, that would argue for having a higher allocation to equities, but you don't want to go completely overboard. You want to stay within the realm of reasonableness, but maybe tip 5 or 10 percentage points more into equities than maybe those off-the-shelf asset-allocation models might suggest.
You also want to think about your own risk capacity; your ability to handle risk without having to make some change in your retirement plan. For example, someone who is getting close to retirement, maybe someone who is age 62 or so, would want to take more risk, but realistically he or she may be getting close to retirement and probably shouldn't be taking risk. I would contrast risk capacity with risk tolerance. Oftentimes, those things can be at war. You have young folks who feel like they are very risk-averse, when in fact they're the ones who should be taking more risk because they have a high risk capacity; they won't be retiring for many years.
And finally, how long you expect to be retired should also be factored in here, as well. As I said before, when I mentioned the 50-year-old who might be retiring in five years, he or she realistically could be retired for 40 years or more and would need more in stocks than the person who is retiring at age 65 in five years.
In terms of investment selection, once you get past that asset-allocation piece, my advice is to focus on core holdings for your 401(k). Lots of 401(k) lineups increasingly have a really diverse menu of choices with lots of narrowly focused options, and it's important to focus on building out that core of the portfolio.
On the left-hand side [of the slide] I've just run through a list of investment types that I think of as the core. These could reasonably be 80% or 100% of your 401(k) portfolio. And then on the right-hand side, those are investment types that I think of as noncore; they're not just representative of broad market sectors. And so you want to keep them to a limited role in your portfolio.
As a side note, a lot of these noncore investment types are the fund types where when we look at investor behavior and we look at the investor timing of their purchases and sales, investors do horribly with these investment types. They tend to want to glom on to whatever asset class or whatever sector has performed well in the recent past, and then sell whatever looks lukewarm. So, right now, for example, I hear a lot about biotech, which has been a tremendous performer, at least it had been until recently. And I see that investors' preferences for these narrowly focused investment types tend to kind of wax and wane with whatever performance has looked like in the recent past.
In terms of identifying great core funds, Adam hit on the value of cheaping out. I often say that if I were to ask any of you what you're paying in terms of your cable TV bill, you could probably tell me, within $10 what you pay a month. Then if I were to ask you what you pay for your investments, you probably have no idea. The reason is that as consumers, nobody is ever asking us to write a check for this stuff. I think as consumers we tend to be less sensitive than we ought to be when it comes to paying these fees and thinking about these fees.
But when we look at all of our data that we have on hand at Morningstar, what we see is that one of the very best ways to stack the deck in your favor in terms of finding good investment types is to look for those that have low costs. It's counterintuitive because we all live in a world where you get what you pay for, but in investing it really is: You get what you don't pay for.
So, cheaping out is a great strategy. I've laid out a few benchmarks here on this slide, but really, these [percentages] are the high point of what you'd want to pay for any sort of investment. You'd want to try to keep your costs even lower than what I've got on this slide.
Simplify. I'm a big fan of all-in-one-type investments, investments that give you a lot of diversification in a single shot. Index funds certainly deliver from that standpoint. They also deliver from the standpoint of generally being pretty low-cost relative to actively managed options. You also want to look at the quality of the firm, fielding whatever investment it might be.
Morningstar has Stewardship Grades, where we look at how the firm treats its shareholders. Our analysts do quite good work in this area. And what we found preliminarily, at least, is that good stewardship is correlated with better performance.
Look for long manager tenure if you're looking for some sort of actively managed product. The longer the track record the better.
And you might look at past returns; they're, after all, one of the few quantifiable ways to assess an investment type. But you want to examine the returns over various time periods to just kind of get a sense of what sort of animal you're dealing with.
I think the past several years provide a really good lens to evaluate performance. If the fund was terrible during the bear market and has done really well over the past five years, that's a signal that you've got of more or less aggressive investment type. If a fund had the opposite performance pattern, you would expect it to be more conservative in terms of its makeup and in terms of its behavior.
Look at performance through a variety of different time periods. And ideally, you would mix and match investments that have different performance characteristics. You don't want all funds in your portfolio to have had the same performance characteristics. You want to have some investment types that serve as ballast in a weak equity market.
The last question that I'm going to tackle here today is: What to do with your 401(k) plan when you leave your employer? And this can be either because you're retiring or because you are moving on to another employer. I will just run through the key options that you have at that point.
Option one; take the money and run; option two, leave the money be in the former employer's plan; option three, roll it into an IRA; option four, roll it into the new employer's plan. So we'll just discuss the pros and cons of each of these options.
Option one: take the money and run. Well, the obvious advantage and one of the reasons we see a lot of folks do this when they leave a 401(k) plan is that it is a lump sum, and it does allow you to perhaps tackle something that has been weighing down your financial plan. I know that oftentimes we see people with small balances pull their money out and just take it and don't reinvest it anywhere. And they may in fact be doing something smart with that money. It's not always a terrible idea if someone has very high-interest-rate credit card debt, for example. I'm not sure that it's the worst idea in the world to pull the money out.
But, the big disadvantage and one of the reasons that you'd want to think twice about doing this is that the tax treatment is pretty ugly. You will pay ordinary income taxes on that withdrawal, and if you're under age 59 and a half, you'll also pay a penalty for that premature withdrawal. For some folks, that can be almost half of their balance, going to pay taxes and penalties.
And another big disadvantage to this is that by pulling the money out of that framework and not rolling it into another 401(k) or IRA, the money will no longer benefit from that tax-deferred or tax-free compounding in the case of Roth assets. I think that this is generally a last resort, generally something that one should only consider in a situation where you have something dire going on elsewhere in your financial life.
Option two: let it be. The key reason to consider this is if your plan is a gold-plated plan with very low costs, no administrative costs, and lots of great fund choices, then there might in fact be reason to let it sit in the plan. Another key reason to consider it is if you are getting close to retirement, and you are separated, or you plan to separate from service from your employer, you can actually tap that money that's in a 401(k) a little earlier than you could do with money in an IRA. So you're able to tap a 401(k) if you've left the employer at age 55, whereas money in a 401(k) must wait until you're age 59 1/2 to avoid that extra 10% penalty. So that's something to consider if you're getting close to retirement and expect to leave your employer.
Another thing to consider is that 401(k) plans may have some legal protections that are unavailable in an IRA, and this treatment varies on a state-by-state basis. But generally speaking, 401(k) assets are considered a little safer from creditors and bankruptcy proceedings and other legal proceedings than are IRA assets.
The big drawback is that some companies may not allow you to stick around an old plan, especially those with small balances. They tend to want to get people out of the plan because they're paying in some cases extra administrative expenses to keep them around.
One thing to keep in mind, too, is that within the context of a 401(k), you may be paying an extra layer of administrative expenses. Adam referenced this in his presentation. That's one disadvantage. Especially if you're with a small employer, your company may be levying a fee on you to stay in that 401(k) plan. By pulling the money out and putting it in an IRA or maybe in a new employer's plan without such high administrative costs, you're able to escape that layer of fees.
And then one of the other disadvantages is that the more little onesies you have in your portfolio, the more old 401(k)s and little IRAs here and there, it just gives you more accounts to monitor, it gives you more statements coming in the door, and I think that certainly as you get close to retirement and enter retirement, the name of the game should be to try to skinny down that number of holdings.
Option three: roll it into the new employer's plan. Here this would be a consideration. Obviously, if you're going to continue working, this won't be an option if you're planning to retire. But this can make sense if your new employer has an absolutely terrific investment lineup.
Sticking with a 401(k), whether your former employer's 401(k) or your new employer's 401(k), can also makes sense because there might be certain investment types that are available to you as a 401(k) investor that are unavailable outside of the 401(k) framework.
Stable-value funds, which some of you may have access to in your 401(k)s, are one thing that you are not going to find outside the context of a 401(k). So, if you like the stable value and you see that you're earning maybe a 2% yield versus the 0.5% yield that you can earn on cash in an IRA, that might be reason to stay put in the 401(k). There might also be institutional share classes that are part of your 401(k) that as a smaller investor in an IRA wouldn't have access to.
If you are using one of those advice engines, you may be able to partake in the holistic sort of advice by keeping the money inside of the 401(k).
One of the reasons that you wouldn't be able to use this option is if you are [retiring], obviously rolling the money into a new employer's plan isn't an option. And then you may also pay extra administrative costs by staying within the 401(k) confines.
Finally, the last option, and the one that I generally favor for people leaving their employers is the idea of rolling it into an IRA. And the reason is, as I mentioned, that you can avoid that layer of fees that often accompanies 401(k) plans. You can take advantage of open architecture. So, in the IRA framework, you have the option to invest in almost anything you want, for better or for worse. That's another potential advantage; maybe a disadvantage based on what you'll do with all that flexibility. And then if you have old 401(k)s for multiple employers and you roll them all into one mega IRA, that will give you less oversight responsibilities on an ongoing basis.
In terms of the drawbacks, as I mentioned, by investing in an IRA you'll miss out on some of those 401(k)-only choices: stable-value funds a nd institutional funds really being the big categories that you probably cannot get within an IRA. You may miss out on some legal protections. As I mentioned, 401(k)s tend to have, generally speaking, better legal protections than IRAs. And just as a 401(k) plan can provide some guardrails, you will not have those guardrails if you're investing inside of an IRA.
So, I just wanted to go over what we see as kind of the key takeaways for people managing their own 401(k) plans. I think that we both have hit the concept of costs pretty hard, so that's paying attention to costs at the fund level and also at the plan level, making sure that you have a good sense of what you're paying in all-in costs. In some cases if you are with a smaller employer and you look at the plan and it's very, very expensive. As Adam said, I think it can be a good strategy to invest just enough to earn the match and then do what you can with any other investable assets using an IRA where you're able to escape that layer of plan costs.
Always getting the match--I can't think of any situation where it wouldn't make sense to invest enough to get the match at a minimum.
Keep it simple. This is absolutely essential in my view. So, the idea is that you are not having too many moving parts; you're staying away from overly narrowly focused and overly risky investment types.
Thinking holistically about the investment plan, I think, is also very important. I love that idea of getting that total view of your household's retirement assets when you think about how to make your allocations.
I know for two-income couples, both of whom have access to some sort of retirement plan, it can make sense to kind of take the best and leave the rest. So, for example, if your spouse has some good equity index options, but his or her bond choices aren't so good, maybe you're the one who has a higher bond allocation if your bond choices are better. So, I think that there are ways for spouses to kind of maximize the best of their respective plans by taking a unified view of the asset allocation. Each plan doesn't need to be a well-diversified whole unto itself; you can kind of pick and choose and make the best possible investment program from that standpoint.
And finally getting some form of help I think can be very, very valuable, whether you use an advice engine that happens to be embedded in your 401(k) plan or use a financial advisor. I like Adam's idea of looking for someone who is fee-only as opposed to someone who is commission-based. That way you can get that objective source of guidance. You can get guidance from a fiduciary who is charged with looking out for your interests as opposed to anyone else's.
We'll wrap it up there. I would say these are the key things that we hope you take away from this presentation, but we also do have some time for some questions. I'll invite Adam back up here to join me to field some questions.
Unidentified Speaker: You kind of touched on this briefly, but like in my case we have a lot of our retirement savings in Vanguard and also we have both a Roth and a 457. And I was wondering if you could talk about whether there is anything to worry about with [investing] with one company. Should we be looking to diversify across companies with our investments, so kind of the asset allocation for the companies out there?
Benz: I'll just repeat the question. The question was kind of the eggs-in-one-basket question. If you have all of your assets tied up with a single provider or most of your assets tied up with a single provider, is there anything to worry about from that standpoint?
And I think it does depend on really who the provider is, how well-diversified their lineup is, and how good they are at doing various things.
In the case of Vanguard, which you mentioned, I think that that's a rare firm that really does a good job on fixed income, international equity, and domestic equity. The other thing I like about Vanguard from that standpoint is that there are no in-house Vanguard managers. Well, they do have a few, but most of the assets are run by outside managers for Vanguard. So, I think there's less of a risk of the house style falling from favor because there really is no house style.
I think that's a bigger issue when you are looking at a firm like, say, American Funds, for example, where the funds all tend to be very well-diversified and have sort of a mellow take on whatever style they happen to practice. I think there you might tend to see some of the funds' fortunes rising and falling at the same time.
So, I think it unfortunately depends on what the firm is, but I don't think there's a huge risk if the firm is very well-diversified and does a good job at multiple asset classes.
Unidentified Speaker: My wife wants to retire in August. She discovered that in June, her employer is moving to a different 401(k) sponsor, and she's been working with the old sponsor for the last few years. Do you have any thoughts on what she should do with this?
Zoll: I would say, number one, ask why this change is occurring.
Unidentified Speaker: The employer thinks the costs are going to be lower.
Zoll: Potentially that's a positive development. Find out, will there be any change in fees that are charged and if they can actually quantify the cost savings; that would be very helpful for you and your wife to know. Also find out if there will be different fees assessed for different things like taking out a loan, using a brokerage window, or if there's going to be different sort of structure to that plan expenses moving forward. And those are some of the basic things. It sounds like it's potentially a positive move, but you want to find out that if there is this cost savings, if you're giving up anything else or if those expenses are going to be applied in some other way.
Benz: One other thing I would mention is that sometimes when there's a new provider, the old options get mapped into some other choice, so say your wife is participating in X mid-cap growth fund, they may have some like-minded fund from the new plan sponsor. You kind of want to check on how good a match that mapping is doing for you. The funds may not be perfect analogs. If you do allow the plan to just map you into whatever they think is the best approximation of what she had before, I think you'd want to do that X-Ray check to see how the total portfolio looks after that. But I think that's another consideration, too. There may not be a perfect analog in the new fund lineup for what she had before.
Unidentified Speaker: Excuse me. In terms of the inflation, for years that was always a bit of concern of people in their 50s, going into 60s and going onto retirement. I noticed in [Christine's] breakout, it looked like [the portfolio was] leaning toward TIPS but it only was about 12% moving to your 60s. If we get a real spike in inflation over a long period of time, it's going to catch people in their 50s and 60s maybe by surprise. Do you have any advice that would maybe take asset allocation differently if we see a spike in inflation?
Benz: Great question about inflation. I mentioned, when I showed the asset-allocation pie charts, we saw the inclusion of Treasury Inflation-Protected Securities and also commodities to provide a hedge against inflation. The question was, inflation is kind of benign right now; it's feeling pretty tame. But what if we do have some unexpected spike in inflation, what should portfolios look like or how can they help hedge against that?
I think one thing to think about is that your best asset to outrun inflation over the long term is having stocks in the portfolio. To the extent that you have stocks in the portfolio, I think that you can think of that as kind of an inflation hedge in and of itself. But I do think that as your portfolio is increasingly in fixed-income assets, you do need to make sure that a bigger share of that is in some sort of inflation-protected securities.
One fund that I've been recommending a lot--Treasury Inflation-Protected Securities can be pretty volatile; the core type TIPS funds can be pretty volatile. So, I like the new Vanguard Short-Term Treasury Inflation-Protected Securities fund. The reason is that it provides a direct hedge against inflation and also avoids a lot of the interest-rate-related volatility that comes along with core intermediate and long-term TIPS. So, thank you for that question.
Unidentified Speaker: What might be a good recommended asset allocation between bonds, stocks, and money markets?
Benz: I would spend some time looking at--I provided some slides that take a look at some sample asset allocations for people at various life stages, and you're welcome to use this presentation. We drew these slides largely from Morningstar's own research, its own Lifetime Allocation Indexes. But this is such an important question and one that I think really depends on your own personal situation so much that it pays to think through some of those custom factors that I had on this slide as well to arrive at what is a sensible asset-allocation mix for you. It would be great if we could all just use [Vanguard founder] Jack Bogle's advice of, subtracting our age from 100, and that's the amount that we should have in stocks. But, unfortunately I think it's a little more complicated than that. Although, I think that's a perfectly good starting point.
Unidentified Speaker: What do you think of indexed annuities? What's your opinion on that?
Zoll: Go right ahead.
Benz: Annuities are a very complicated topic. The question was specifically about one flavor: equity indexed annuities, which are designed to give you some participation in stock market gains but also some downside protection. One of the key things to keep in mind is that anytime you say annuity, especially any annuity product that's not just a fixed annuity, you are usually talking about some pretty high embedded costs. And typically the formulas that those equity indexed annuities use, as a shareholder or as an owner of such an annuity, you are not able to partake of dividends that the indexes kickoff.
So, it's really important to look at the formula that's being used to calculate your return on the annuity. Dividends historically have been a big component of the market's returns, so by forgoing those dividends, that's potentially a big drag on your equity return. You really have to do your homework. You have to know what you're buying. I always say, no question is a stupid question when it comes to purchasing an annuity if you are working with an advisor, and he or she thinks, this is a good idea, ask all your questions until you've exhausted them because there's definitely a lot to think about here.
We've written on this topic on Morningstar.com and you can probably find our articles on the website where you can read more about how to do due diligence on such a product. But generally speaking, I think about the costs as well as that the forgone compounding advantages by not having those dividends as part of your return.
Zoll: I think this is also a topic that's a good reminder that you shouldn't by a financial product that you don't really thoroughly understand. These annuities can get very complicated, especially when you are trying to weigh the cost benefit versus trying to figure out whether it's worth your while to purchase it. Unless you ask all these questions, unless you get answers that you understand and that feel right to you, you probably want to steer clear.
I'm not necessarily saying in this particular case, but just in general as a rule of thumb, these financial products can get very complicated, and it's very easy to just kind of go along with what someone's telling you to do. But you really need to be your best advocate and make sure that you're protecting your best interests.
Unidentified Speaker: What are your recommendations on the online retirement calculators?
Zoll: One of the best that I've used is T. Rowe Price's retirement calculator. It's very thorough, and it's got a lot of those variables I mentioned earlier. That particular calculator gives you guidance about whether you are on track [for your retirement goals], and if you are not track, [the calculator offers] steps you can take you to get on track. I think that kind of thorough handholding advice, when it comes to retirement planning, is really useful.
Benz: Fidelity has some good tools, as well, especially, I think it's called Fidelity Retirement Income Planner for people who are getting close to retirement. I hear raves about that tool from some of our Morningstar.com users who have looked at it when trying to figure out where they will go for income on a year-to-year basis. I've heard great things about that tool, as well.
Unidentified Speaker: So, I've decided already after working with some investment guys who were not so good that I'd like to buy some Vanguard funds. I have some friends who buy them and I've read a lot of these are certainly very good, but there are so many of them. I don't know how to choose.
Zoll: Right. I guess that it sort of depends what are you looking for, maybe an all-in-one fund that if you're trying to simplify? A total stock market fund, for example, that owns the entire market is a great sort of one step-way to get exposure to the U.S. stock market from the largest companies to the smallest companies.
You can use that with, for example, a total bond market fund, sort of weight them accordingly, and really build a very simple portfolio that's very cost-effective and very well-diversified. One of our five takeaways is to keep it simple. Oftentimes you don't need to own 10 different funds in order to have well-diversified portfolio. With some of the index products, for example, you can get great diversification with just a handful funds.
Benz: One other thing I would throw out there in terms of allocating a portfolio of Vanguard funds is a resource: bogleheads.org. The site is kind of a fan site for Vanguard founder Jack Bogle, but they also have a terrific discussion forum going there where they talk about all sorts of important topics and then a great wiki site where they do a deep dive on everything from Roth IRAs to long-term care insurance. It's a great free resource; I recommend it a lot. I also like the Bogleheads books quite a bit. They've got a basic Bogleheads' Guide to Investing and then the Bogleheads' Guide to Retirement Planning. They are both terrific resources. So you'll see a lot about asset allocation on the website and a lot from people who like very simplified portfolios as Adam was discussing.
Unidentified Speaker: I have a question on the financial advisors to be selected on a fee-only basis. I understand there are a lot of people out there who are good, bad, and different financial advisors. What criteria to you want to establish to select a better one or distinguish the better from the good or bad?
Benz: I always say to look for three key things. Adam hit on one: fee-only. I like that business model. Ideally, I like the hourly business model; I think it's the fair way to pay for advice. Unfortunately, not a lot of advisors want to work that way. But I think it's a great business model and the most investor-friendly business model. You want to look for fee-only. You want to look for someone who is a CFP, a certified financial planner. And you want to look for someone who's a fiduciary. So ask them point blank, "Are you a fiduciary?" If there's any hemming and hawing about that, that's not the person for you. You want someone who is a fiduciary, meaning that they are willing or that they are charged with looking out for your interests. They can't serve anyone else's interest at the same time. I would look for those three things to line up when looking for an advisor.
Unidentified Speaker: Even if they tell you they are [a fiduciary] and they aren't, than what?
Benz: So the question is if they tell you they are a fiduciary, they shouldn't be doing that if they are not a fiduciary; that's a legally binding designation. So one would hope that no one would be saying that if they weren't truly a fiduciary.
Unidentified Speaker: What are the regulations about withdrawal ages?
Zoll: The regulations about withdrawing before 59 1/2?
Unidentified Speaker: Yew, if you are allowed one withdrawal before 59 and a half; what are the regulations for this?
Benz: So the question is about early withdrawals prior to the age of 59 1/2. The rules really vary based on whatever investment vehicle you're looking at. In the case of a Roth IRA, for example, that's the best thing to withdraw money from prematurely because you can withdraw your contributions at any time and for any reason without owing tax. So that's usually the most advantageous one.
The other ones have all different rules regarding premature withdrawals. As I mentioned with a 401(k), if you are age 55 and have left the employer, you can begin withdrawing from that portfolio, but other withdrawal requirements from other investment types would be more stringent. So it really does vary.
If you take substantially equal periodic payments, you can take an early withdrawal. But that's probably something that you'd want to look into specifically and make sure that that option is the right option for you.
Zoll: Let's finish up with this woman here who had her hand up.
Unidentified Speaker: Thanks to Morningstar. But in using your charts because I'm needing to make a few decisions on where to put the money. I've got about you 20 to 30 different areas. I have a planner who is 15 to those, and I have my own five or six that I have from the past. If I'm using Morningstar as one of my resources, what are some places where I can look at some really good ETFs. And what are some of your hidden nuggets that you might point us to help make those decisions of where we ought to put our next fund money.
Zoll: There is an ETF screener tool that actually lists some of our ETF analysts' favorite ETFs of various types. If you go Morningstar.com and click on ETF tab, you will find our ETF Analysts' Favorites list. It really gives you a broad selection of different ETF types to choose from. And I would encourage you I know that through the Moriningstar Investment Research Center, you can read our Analyst Reports on ETFs and find out why they like these specific ETFs. ETFs can be a great, really cost-effective way to invest, especially the majority of ETFs are index-based. But there are some actively managed ETFs that are coming along. The best place to look would be that ETF page.
Benz: I would agree. One other thing that you can see on our list of ETFs that we have information on, you can see a price/fair value ratio for ETFs, not that you want to get carried away being tactical with exchange-traded funds. But you can see if you're looking at some sort of technology ETF and the price to fair value is like 1.15, that's an indication that maybe the asset class you are considering is a little too hot to handle right now. I like that as another piece of intelligence. The price/fair value ratio provides a summary of the attractiveness, or lack of attractiveness, of the holdings in an ETF based on our stock analysts' view. That's something I sometimes take a peek at.
I also sometimes look at our market fair value graph that's on the markets cover page. There's a little innocuous-looking link that says market fair value. I often click on that just to see what our analysts are thinking about their total coverage universe. I haven't looked in the past couple of days because the market's been down a lot. But generally speaking the price/fair value ratio for all of the stocks in their coverage universe has been bumping around at 1.04 or thereabouts. But then you can drill in and see whether there are sectors that look relatively less expensive. I know energy, for example, has looked pretty cheap to them for a while as well as basic materials. So that's another tool that I sometimes look at just to see where the potential opportunities might be.
Thank you all for coming.
Zoll: Thank you.