I am not sure what you mean by “low-tier cost of Medicare” but I have a Medicare Advantage plan and don’t pay a supplement. Are you talking about me?
The article stated they held a $53 million investment Infinity Q. So I guess they are saying they lost $22 million. So the loss is still significant, and in a mutual fund that is an outrageous loss.
No - there are very low cost plans for specific areas with combining the Medicare with Medicaid. For very low income.
Medicare Advantage Plans can have lower costs for people than other plans, and may fit a budget and health care needs for the individuals/couples choosing those type of plans.
High risk/high reward. Many mutual funds chase speculative stocks. Many VCs invest in speculative enterprises. Some burn, some produce ok returns, but some become mega-baggers. Whoever made this investment did not make a huge plunge into the fund. Good. Funds like that Q blow up all the time. Remember Janus?
Better risk/reward with exchange traded stock funds. To me, if one wants the more conservative Mutual Fund returns which are not to have the risks - be sure they are not investing in speculative things that like Infinity Q which had valuation errors. The investor noted in the article was not wanting to take chances with his nest egg, and felt comfortable enough to place 30% of his savings in the fund. Obviously he and other investors lost out with this investment.
“The fall of the almost $2 billion Infinity Q Diversified Alpha Fund is a reminder to investors about the risks that can lurk in their holdings and the heavy costs and frustrations that fund liquidation brings. Glickman (the ‘careful’ investor) for one, is especially upset that the fund’s trustees have set aside $750 million of investor money to cover potential costs associated with lawsuits against the fund and its officials.”
We have our portfolio with a balance for our risk with various products like Annuities that are researched by our financial planner. We have stock funds in our 401k that have done well - very well in 2019 and 2020.
With a pension fund, you are at the mercy of how the pension is managed.
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Mutual funds invest in a large number of stocks and sometimes other similarly risky (in individual basis) vehicles. By definition, individual stocks are speculative investments. When you own a huuuuge number of different stocks, your risk that the whole thing blows up goes down. Think Spyders. So someone made a small bet on what was promoted as a different kind of a fund. No biggie. The investment was tiny, so no large damage was done. Do you think pension funds only invest in things that always go up? 
Regarding that investor mentioned in the article… too bad so sad. When you plunk all $$ in one speculative thing, don’t blame anyone else when it all goes south. You need to know your risk tolerance when investing. For example, we own a number of individual stocks because our risk tolerance is very high. However, we are also hedged by the RE we own mortgage-free and our emergency cash reserves. Our stock portfolio can have 10% daily swings. Does it make us nervous? Not really.
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I am just saying that when a Mutual Fund is not performing - and if you have the same risk and better returns elsewhere like with exchange traded stock funds…
We got out of Mutual Funds in the 1980’s as we (I) got more knowledgeable about things. We rolled those funds into IRAs and then Roth IRAs and have never looked back. Now our financial advisor manages our Roth accounts and some other things.
Hmmm… your IRA holdings are not mutual funds? So you own RE or individual stocks in your retirement accounts?
An IRA is more like a container where you can have various investments, including mutual funds, in it.
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No our financial advisor has group investments but it is through Ameritrade. We have our Roth IRA in their highest risk group since it will have the best returns and is last to use funds - which they manage plus they also use a west coast consulting group which they pay for the additional oversight/advice. Only 7.5% of our portfolio is in Roth IRAs. The rest of our portfolio is Qualified Retirement (401k), Annuities, and real estate (our home). I don’t know where the added value in our life insurance policies falls (the cash value) w/o doing the calculation off the balance sheet. Which reminds me to get an updated summary from my insurance agent/company on all our policies.
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Typically pension benefits are determined by contract. Beneficials to which you are entitled are not based on how the pension fund’s investments perform. If you have a private pension, your risk is often based on how the company itself does. If it goes bankrupt and the pension fund is underfunded, the PBGC will take it over and beneficiaries will likely receive pennies on the dollar. Even if its fully funded, future contributions to the plan will not be made by the company which will also impact benefits paid to beneficiaries going forward.
If you have a government pension (such as STRS Ohio which you have mentioned), you are in the same position in terms of expected benefits. Difference is states cannot file for bankruptcy protection which means there is no way out of that pension liability (choices for states will be to cut other non-pension benefits or raise taxes (or combo of both)). Municipalities can file for bankruptcy protection so if you have a city pension, you are more at risk. Federal government cannot file for bankruptcy protection.
Mutual funds and EFTs are very similar:
Higher risk investments can bring with them an opportunity for higher returns. But its not guaranteed. Returns may not be as high as expected and may even be negative (and often times losses in high risk investments are bigger as well).
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I have a number of friends who worked at Delphi & their expected pension benefits were decimated by bankruptcy. Union employees kept their benefits, which were preserved even through GM’s bankruptcy. They are incredibly bitter, which is understandable. My H’s retirement took a big hit due to bankruptcy, but not as bad as some of our Delphi friends experienced.
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You have given an educated response on pensions.
My experience has been better returns in other instruments than mutual funds.
An investment that has a long time out there, you can ‘afford’ to take the risks - that is why we have chosen to have our Roth IRA in the ‘highest’ risk group, which is still relatively conservative and well managed.
As people approach retirement, they often really need a lower risk on their portfolio - and that is why we have chosen to lower our risk with the purchase of Annuities which have been well researched and have done well - and they have a guaranteed ‘bottom’ which does better than bond fund results – we have 5 annuities (3 different insurance companies), including one we just took out with purchase from 401k which is all in stock funds – our stock funds have grown so much it was sensible to not have it so heavy on our portfolio.
Absolutely true about pensions and the sources. Pension laws changed to protect employees who had their pensions disappear with company bankruptcies decades ago. One also could only put a limited portion of 401k in company stock as a protective measure to the individual. Back in the mid-90’s, DH worked for Motorola and you were limited to 25% purchase of company stock with 401k.
For the reasons you mentioned, one wants the pension managed well.
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I do think the individual investor in the article ‘trusted’ many things too much, as time went on felt the investment was less risky than it was - over time he might have looked at it as a steady thing, and also disappointed about the financial institutional protection of the trustees. I applaud the media on spotlighting these type of situations as part of the checks and balances with oversight and also with changes with oversight rules - and it gives individuals additional insight that professionals may already know - for example risk that may be present due to various details on the assessment/valuation of assets.
I do think people consider mutual funds as much safer investment vehicles than a stock fund, and have lower expectations of returns. So when they see stronger returns on a Mutual Fund, they may feel it is ‘safer’ when it is not.
We have just one energy company/single stock purchase, that we know well as ‘single source’ investment, but not heavy. It had good growth for DD’s 3rd source of college funding (behind scholarships and pre-paid college tuition program), and we have opened accounts for grandchildren’s college funds.
Former pension and 401k benefits administrator here:
A Roth IRA is NOT an investment fund. It’s a specific type of retirement vehicle with various rules established under ERISA and the Internal Revenue Code. I could have a Roth IRA with Spyder, real estate, bitcoin, CDs, mutual funds, individual stocks, and all kinds of other speculative things.
Ditto regular IRAs, 401k plans, 403b, and traditional pension plans. They are all legal vehicles for different kinds of retirement plans.
Employers/plan sponsors assume the investment risk in a traditional pension plan. That means if the plan’s assets do well, the company can fund less the following year. If the plan’s investments don’t grow enough in a year to meet the minimum funding requirements (this is where the actuaries get involved), then the PLAN has to contribute more the following year. If the plan is unable to meet its minimum funding obligations, there are penalties, and some plans may submit for a takeover by the PBGC. Some level of benefits are guaranteed then, but often not full benefits (esp for higher-paid employees).
With the advent of 401ks, employers switched the investment risk to the PARTICIPANTS and phased out traditional pension plans. If your funds did poorly in your 401k, that’s your problem. 401k doesn’t guarantee you a set benefit at retirement. Given the level of financial education (or lack thereof) in this country, a lot of people have been totally, utterly bleeped by 401k plans. For most people, mutual funds are a way to participate in the market without possessing specific expertise.
My dad and my FIL had zero personal savings. If not for their pensions (one military, one electrical union), they’d be destitute. The union didn’t offer a 401k option when my FIL was working, and my dad couldn’t participate in one until he took another job after military retirement – and didn’t have that long to accrue savings.
Every day at work I dealt with folks who cashed out their 401k plans when they quit a job because they needed the cash NOW for unavoidable expenses. It was heartbreaking to see a 45 yo participant cash out a hard-saved $50k balance, knowing they’d have to pay federal & state taxes, a 10% early distribution penalty in most cases, and would see maybe half of the $50k in the actual distribution check. And if they did this 15 years ago, you can imagine what that $50k would be now.
I used to work for a guy who sold annuities to people who were distributing 401ks or IRAs. They were the most lucrative source of income he had. This is different from the costs of a pension plan establishing an annuity, where the actuarial costs of an annuity are set out in the pension plan documents, which are subject to IRC/DOL approval.
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cbreeze - the facilities that your husband has visited that are Medicaid/bad - are they Medicaid only?
As I’m understanding it (could be wrong) some places are nice, you pay a decent amount to get in and stay in, but when you run out of your own money - Medicaid kicks in and you can still stay…Presumably it’s the same nice place? (or do they switch you to the less-good Medicaid wing? yikes!).
In our area we don’t have any Medicaid only nursing care facilities. Most are a hybrid of full pay, subsidized or Medicaid. The Medicaid reimbursements are so low that they don’t even cover overhead so you can see as a business venture it is not viable. The difference between a good and not so good facility is basically the management and the availability and responses of caregivers. Most often, it is very difficult to hire help as you can imagine and the lower the revenues, the more difficult it is to hire help. I know of some people whose loved ones went onto MediCal/Medicaid while in nursing care facilities and family members took turns to be there 12 hours or more each and every day. These are the lucky ones who will get better care because they have someone there advocating for them.
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@CountingDown I agree wholeheartedly that there are many people selling annuities that will sell their own insurance company product and are not really looking out for the individual, and do earn a sizable commission.
After working for years with our financial planner, and carefully reviewing the specific annuity purchased, we have been happy with what we have received. Insurance companies offer products like Annuities, and they come out with all kinds of various annuity products.
IRA and Roth IRA. IRA = Individual Retirement Account.
So although I used the term ‘investment’ it is our own particular participation with retirement beyond 401k and other. DH for a while also had SAR-SEP. We eventually got these funds consolidated, paid the taxes to convert IRAs that we both had to Roth IRAs.
DH also had worked for a company that had both a 401k plan and a pension plan – it was ‘bought out’ by a company that only wanted to continue the 401k. So after the gov’t approved the employee distribution from the pension, we received cash, stock, and a small monthly payment annuity. The annuity managing company has also changed over the years.
Years ago I had been a CFO and responsible for 401k as part of my responsibilities. I had an employee bail out all her 401k funds - take the penalty (not 59 1/2 age yet) and the extra tax hit - to bail herself out financially. Our plan was a top heavy plan, so all employees that were not physicians (the top heavy folks) got an extra 3% of their pay put into the 401k. I had participated with the full amount I could put into the 401k and got 8% of my salary put in by the company. My salary wasn’t substantial, but I was able to build up $100,000 in a short time.
There are people who have lived modesty and saved/invested well. Many others have not.
@cbreeze Covid periods where no outside folks - exception only made with someone dying. State regulations.
Our facility has a CNA training program and paid for time during the training. One needs a steady stream of CNAs (Certified Nursing Assistants) because it is not easy work and not high on pay. All licensed nursing staff (LPNs, RNs, Nurse Managers) - harder to get. So the facility pays for Contract Nurses - who are good, but it is a short term ‘solution’.
A facility has to maintain a certain number of employees per shift - licensed and CNA/NA personnel.
We have personnel that have left and returned - and some that have left are not allowed to be rehired by any of our 50 facilities. So the immaturity of some young personnel can have consequences beyond what they think at their impulsiveness to walk off the job and the like.
What’s the logic of not being able to rehire someone who has left? Or are you suggesting that some were bad workers and that’s why? Not everyone who left, then?