Tony Robbins Reveals Huge Warning About 401(k) Plans and Offers an Alternative
Written by
J. Arky
Edited by
Rebekah Evans
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Motivational speaker and money guru Tony Robbins is a champion of creating a nest-egg through a combination of employer contributions to a 401(k), personal IRA building and saving for retirement when he predicts life gets more expensive for multiple reasons.
However, as The Street reported, Robbins is concerned about the fact that pay-to-play fees are mandatory for nearly 90% of 401(k) plans. These added costs give contributors access to available mutual funds as an investment option, which has limited funds to pick from, forcing contributors to go with target-date funds that profits to the highest amount for vendors, brokers and managers.
Target-Date Funds
Robbins said that even though target-date funds (TDFs) is a popular type of mutual funds, it may not be the best option.
“These funds typically start with a more aggressive, growth-oriented mix of investments and automatically adjust over time to more conservative investments as your target retirement date approaches,” said Steven Rogé, CEO of R.W. Rogé & Company, Inc. “The biggest issue with many 401(k) options is that they operate on a ‘one-size-fits-all’ model, overlooking the fact that every investor has a unique risk tolerance, time horizon and goals.”
Glide Paths
According to Robbins, 401(k) plans that offer target-date funds tend to be the most expensive for contributors to opt into. TDFs function under the direction of a fund manager’s “glide path,” which is a schedule for more risky stock holdings to decrease while less risky bond holdings increase to aim for safer investments the closer their clients come to retirement age.
Robbins pointed out that managers can choose their own “glade path” with no standard, which could get out of control.
Pure Alpha
There’s a smarter alternative to making the money in your 401(k) in Robbins’ professional opinion and that is Pure Alpha, a strategy that was introduced in 1991. The aim is to grow the value of its investments that should increase whether the markets are up or down.
Robbins said that the Pure Alpha strategy is known for producing an whopping 21% annualized return — before fees — with what’s considered a low risk.
“The Pure Alpha strategy attempts to solve the diversification issue by bringing in assets like commodities and balancing risk exposure, but this still often misses the mark on tailoring to individual goals, timelines and risk tolerance,” Rogé said. “Plus, adding things like commodities isn’t always straightforward or cheap for the average investor.”
For Robbins, Pure Alpha is the alternative strategy to investing for retirement by taking big risks that come with bigger payouts yet also provides a level of protection for those who are contributing to their nest egg.
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Sources
- TheStreet, “Tony Robbins has a major warning for Americans on 401(k)s now.”
- Steven Rogé, R.W. Rogé & Company, Inc.
