What the experts say
401(k) plans get a makeover; Riding the M&A wave; How to haggle
401(k) plans get a makeover
“Don’t look now, but your favorite 401(k) mutual fund may be going the way of the VHS tape,” said Eleanor Laise in The Wall Street Journal. Many 401(k) plans—including those at AT&T, DuPont, Chrysler, and Intel—are replacing the mutual funds they offer to customers with so-called collective-investment funds. These “tend to be substantially cheaper than mutual funds, largely because they don’t have to comply with SEC regulations or market to retail customers.” Like mutual funds, collective-investment funds invest in stocks, bonds, and other securities. While their lower fees are generally good news for investors, the funds have “substantial drawbacks.” It can be difficult to find information on performance or holdings, and the funds can’t be rolled over to individual retirement accounts when you take another job. “Participants have to transfer their funds into other investment options if they take these assets from the plan.”
Riding the M&A wave
Market turmoil has fueled a new round of mergers and acquisitions, said Christopher Farrell in BusinessWeek. That’s helped to prop up returns of M&A-oriented funds. While down slightly this year, such funds have “handily” outperformed the Standard & Poor’s 500, which is 14 percent off its high. M&A funds are actually less complex than you might expect: Many are simply “low-risk arbitrage funds that exploit minor differences in stock prices after a deal is announced.” The Gabelli ABC fund, down less than 1 percent this year, is “the most risk-averse of the group”—more than half of its holdings consist of conservative Treasury bills. That may be “too boring” for some, but it does help counteract one typical failing of M&A funds. “Morningstar data show they’re not great long-term performers, and fees can be as high as 1.95 percent.”
How to haggle
The bright side of this dark economy is that consumers are gaining haggling power, said Bob Tedeschi in Money. Prices aren’t negotiable everywhere—certainly not at the gas station—“but you’ll find wiggle room now in unexpected places.” If you’re in the market for a big-ticket item, such as a new refrigerator, use a comparison-shopping website to find the lowest price. Print out the page, take it to a local store, and ask who has the authority to beat that price by, say, 15 percent. Cell phone contract about to expire? It costs carriers less to keep existing customers than to recruit new ones. Research what the competition charges, then offer to stick around if your carrier can do better. Finally, membership organizations such as health clubs—already gasping for air—are entering their slowest months of the year. It’s a good time for new members to join and for existing members to ask whether prices are as flexible as the yoga instructors.