For example, say my spouse and I hire a fund manager to manage a portion of our earnings, to invest it. I send the fund manager $500 and my spouse sends $500. The total is $1000. At the end of the year, if the portfolio valuation is $1500 then we have a +50% gain. Amazing. If at the end of the year, we have $1000, then excluding devaluation of the dollar, we have a 0% gain. Not good.
Now, I know, I'm not married to my employer, and they do contribute a portion of the wealth I bring in to #1 my salary and #2 my retirement plan, but the affiliated 401K management company computes my returns like this. I send the 401K manager $500 and my employer sent $500. The total is $1000. At the end of the year, if the portfolio valuation is $1000, the rate of return they boast and put on all statements is +50%.
All of that is grossly simplified numbers of course. The situation is actually much worse. I've been feeding this 401K manager for damned near a decade, and I knew my balance was climbing so slow even in the good years, but now it is plummeting. We're ruined. I started grabbing statements and running calculations using their site for various date ranges, and sure enough, everywhere, they are factoring my employer contributions as part of my gains or rate of return. It makes things look less bad (in how they are doing for me, with my money), but the reality is they suck at investing, and by running their calculations like they do, they're hiding just how bad they are.
Is this normal? Is it how all 401K fund managers calculate returns for workers? Seems deceptive as hell. Has anyone else even noticed? I feel bad for just trusting them blindly for so long, and it's even further highlighted how bad they are when my “toy”, lay investing over the past same 10 years has kicked their ass so bad. At this point my amateur investments may be the one thing that spares us from dire poverty in the coming years.
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