Page 96 - Ready Set Retire

Stephen J. Kelley

and buy and hold it forever. It’s a great theory, but it doesn’t
seem to work all that well in today’s trading environment.

There are several theories on why this is the case. One of mine
I believe is pertinent is these models were developed in a time
when there were far fewer investors – mostly institutional –
who traded much lower volumes much slower. The NYSE
didn’t hit 100 million shares traded in a single day until the early
1980s. In today’s world there are over 100 million investors
trading, on average, over 1 billion shares a day. Many, if not
most, are trading online, all competing with the traditional
institutional traders and today’s high velocity trading. Today’s
market is much different.

Mutual Funds vs. Exchange-Traded Funds

When the 401k took off, so, too, did the mutual fund industry.
Prior to 1980, there were a few mutual funds but as people
funded defined contribution plans, they proliferated. Today,
much of the money invested by ordinary investors is done in
mutual funds and, more recently, ETFs.

Mutual funds are often slow and clunky in today’s fast-moving
market environment. They are often opaque and full of hidden
fees. In the April 23, 2013 PBS show, Frontline broadcast “The
Retirement Gamble,” Jack Bogle, founder of Vanguard, had
the following to say about fees:

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