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If You Care About Costs . . .

This is the first in a series of posts about the problem of excess fees charged to defined contribution retirement plans, a subject I’ve been researching with Quinn Curtis.  Our findings about the pervasiveness of excess fees spurred me to reassess my own retirement investments.  I was embarrassed to find that, among other things, my old Stanford University 401k was invested in “CREF Stock Account,” which uses a combination of “active management, enhanced indexing and pure indexing” and charges 49 basis points (.49%) as its “Estimated Expense Charge.”  Now 49 basis points is not an outrageously high fee, but it is substantially higher than the fees charged by a low-cost index. 

So I called TIAA-CREF and asked for help in rolling over my Stanford account to a Fidelity IRA.  The TIAA CREF rollover specialist asked why I wanted a rollover, we had the follow brief exchange: Read More »



The Markets are Mad: Is High-Frequency Trading Making Things Worse?

Thursday’s 423-point gain by the Dow marked the first time ever that the industrial average has posted four consecutive days of 400-point moves. Less than two weeks into August, there have already been six trading days that saw triple-digit swings this month. While the recent sell-off has been swift (the Dow is off more than 12% since July 21), it’s also been choppy. Volatility is back in a big way. The VIX Index, also known as the fear index, has shot up recently, nearly doubling over the last week. The VIX tracks the expected price of a range of protective S&P 500 options over the next 30 days.

While your average investor generally hates volatility, there are those who feed off it, namely high-frequency traders. These are the guys who use complex algorithms and super-fast computers to scour the markets for tiny price differentials, often executing trades in microseconds (one millionth of a second). The more volatile the market, the easier it is for them to make money jumping in and out of stocks across exchanges.

Now, it’s not quite fair to lump all high-frequency traders together. They don’t all necessarily do well in volatile markets. While some are killing it, there are certainly others who’ve been getting killed; it all depends on their strategy. But generally, traders need two things: 1) a price, and 2) movement. Recently, they’ve had plenty of both. Read More »