A warning for everyone investing, Department of Labor just released an update for all 401k investors
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A warning to investors, there are some NEW policy updates we need to talk about that were recently made clear by the Department of Labor and I think you should know about them – especially if you are investing in a 401k
Here is what’s going on – three simple words. Private Equity Funds. For many years, private equity funds have been trying to invade the retirement contribution savings plans that you most likely invest money in.
This is because that amount of money private equity funds will now have access to is worth roughly $6.2 trillion dollars. That is more than the total value of Apple, Amazon, Google, Facebook, Tesla, Alibaba, and Berkshire Hathaway – combined.
Just recently, the department of labor cited an executive order from Mr. Donald Trump to “remove barriers to economic growth.” This phrasing now allows private equity to indirectly participate in your portfolios. The problem is, they’re very misunderstood and no one is really talking about how investing in them is a high risk venture.
First, let’s understand what Private Equity is. What it is, is a giant pool of money that is managed by extremely wealthy millionaires and corporations. They use this money to invest in companies and potentially buy them outright. One of the worst practices of what they do is something called “leveraged buy outs”. This is when they borrow money, purchase a company, then dump the entire debt on the company they purchased. This forces the newly purchased company to start cutting costs until eventually, the company goes out of business.
There’s two major problems with investing this way.
#1 They are considered extremely high cost investments because private equity makes a HUGE amount of money on fees for managing YOUR money. In fact, when they sell a company from their portfolio, they can charge their funds fees over $10 million dollars WITHOUT disclosing that to their investors while they eat away at your returns.
They’re also very difficult to judge in terms of what they are exactly, and if you find out what’s inside your investment and how it’s run because they are not transparent with that information, they are not considered very “liquid” aka – they aren’t easy to sell because they can lock your money in place for 5+ years at a time.
In 2010 the Dodd Frank Act gave regulators more power to investigate private equity. So the Securities Exchange Commission did some digging and they found that 50% of the private equities they looked at, collected fees inappropriately and have violated rules on how they manage money.
#2 The second reason to be careful is that by taking on greater risk, you’d expect a higher performance. But there’s no conclusive evidence that to shows – long term, private equity funds perform any better than traditional investments like mutual funds, indexes, ETFs, or just individual stocks.
People like Warren Buffet are extremely critical of them. In last year’s Berkshire Hathaway meeting with investors, Warren Buffet said “We have seen a number of proposals from private equity firms where the returns are not calculated in a manner that I would regard as honest… If I were running a pension fund, I would be very careful about what was being offered to me.”
More than likely, these funds will not be available to invest in directly, instead, they will be hidden inside your target date funds which according to Fidelity, roughly 52% of all Americans that have a 401k actually own (target date funds). In fact, my parents own a target date fund for 2030.
This affects everyone in the beginning and middle phases of their careers with a 401k employer sponsored plan, especially if you invest by purchasing these target funds. Please be careful about what you’re buying.
Here are some more resources for further research:
https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020
*Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.
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Your video is so good,hope you get better and better.
Your video is so good hope you get better and better
I am your fan, I will always support you..
I don't understand your reference but man you still make me laugh
I invest in stocks and a 401k. In your opinion would it be more beneficial for someone to invest $19,500/yr into their 401k or into dividend stocks? I played with a few different online calculators and over 20 years they all showed the 401k would have more money BUT I don’t think that was taking into account reinvested dividends.
Shared to all my friend and family. Thanks Andrei I always watch your videos. Great content man!
distinguished bullshit…. 🤣
I wonder what his demographic is for gender on his channel cuz I always see guys in the comments I feel like a outsider as a girl lol
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You are very good at this. Like, really good. The production, the info, presentation…. this was great. Thank you.
So how do I make sure my 401K doesn't contribute into Private Equities? I'm with Vanguard.
Andrei help me out man I dont have a 401k in my company I'm trying to invest myself can you do a 1234 step video on investing for dummies please!
And thank you for those links
Lol jokes in magic tricks in the same channel!
I was about to say, "he pulled out the handy dandy notebook"
Aaaahhhh the infamous Yata lock
After 5 replays, split magnetic gambling chip?
thank you,Look forward to info, magic and humor
no one out here like you 😘
I hear you but, I still don’t quit understand. My parents lost a lot of thier 401k when the stock market crashed in the early 2000’ s I’m in the middle of my career and am afraid of loosing any part of it. What would have convinced anyone to allow this?
Ahhhhhh the yata lock !!!!
Hi
Im 23 and have a target date fund. How do I avoid private equity funds. I feel like they are going to make it very hard to find out which ones are going to have it. 😟😔
These yugioh references are freaking epic! 😂😂😂
Removing the brakes so you can go faster. That’s what this is.
yugioh reference overload =D
YATA LOCK!!!! Which is ban in professional Yugioh tournaments.
Hey I’m 15 and watch and learn so much from your videos thx for helping me become successful in the future
The yata lock reference 😂😂😂
I can use the Dark Magician and take all your life points away..lol
most people are poor (and comment on youtube) and i've never wanted to listen to them about financial advice despite them having more than enough to shoot out their mouths
now im a seasoned six digit investor and all i can say is don't listen to anyone that hasn't done it, also known as 90% of youtube commenters
keep your focus everyone, in order to know what is the what.
I understood the Yu gi oh reference
None of my friends understood
LOL this guy
I'm so glad 2 years ago I brokered/self-directed my 401k that USED to be in a Target Fund. Wow. Basically you'll be an ignorant "bad holder" and not even know it. Sounds like changing and using rules to pull off a giant heist.
I normally don't leave comments on youtube. But you make finance so fun that i enjoy your videos so much! Awesome!
dangerously narrow view on private equity. this guy has a very superficial understanding about private equity. very black and white view… private equity often makes companies more cost conscious (ie efficient), puts in the right strategy and ppl, and grows them sustainably creating lots of jobs. none of that is mentioned. in the end they often sell it to another private equity company which will analyse the business model, performance, equity story / reason to exist in-depth. And about debt – would he buy real estate 100% equity? No…banks will finance up to 100% even. Banks will decide how much debt they are ready to give for a particular business based on cash flow profile. Corporations also take out loans to buy a competitor. It is very common… this guy probably educated himself from one-sided, superficial newspaper articles.
Rofl yata garasu
Love this guy….keep it coming and thank you!
Is it bad to invest in a company that has negative equity, even if it seems like their stock is oversold?