Latest news with #Schlichter
CNBC
17 hours ago
- Business
- CNBC
New investment options may be coming to 401(k)s—here's what it means for your money
More options may soon be coming to the menu of investments you can choose in your 401(k) plan. And depending on who you ask, that may not be a good thing. Last month, the Labor Department rescinded Biden-era guidance that cautioned employers to take "extreme care" before making digital assets, such as cryptocurrencies, available in company plans. In and of itself, the crypto rollback is "not necessarily controversial," Philip Chao, a certified financial planner and retirement plan investment consultant, recently told CNBC. "In reality, it's saying we should treat crypto like any other asset." But it may be a signal to companies that they can begin offering crypto in workplace plans without consequence, he said. Similarly, President Donald Trump is reportedly considering an executive order that would direct federal agencies to explore allowing private equity investments — funds that invest in non-publicly traded businesses — into plans as well. Such a move would be a big win for the world's largest money managers, who stand to profit from expansion of access to an asset class that has historically been available only to wealthy investors. BlackRock CEO Larry Fink in particular has been an advocate for opening the doors to private equity, arguing in his most recent annual shareholder letter that "democratizing" private markets could provide market-beating long-term returns for American workers. But while these new investments can offer tantalizing returns, they also pose a major risk for long-term retirement savers, some investor advocates say. "The objective for the average person is to have a safe, secure retirement plan," says Jerry Schlichter, founding partner of Schlichter Bogard, a firm known for lawsuits on behalf of employees over excessive fees in 401(k) plans. "When you talk about new areas like cryptocurrency or private equity, these are fraught with danger for investors for a variety of reasons." To be clear, Schlichter and other financial pros don't deny these assets' potential to make investors money. They just may not be appropriate for everyday investors' retirement accounts, they say. "It's a square peg in a round hole," Schlichter says. Investing experts generally advise parking your core, long-term portfolio in a diversified mix of assets that have delivered proven, consistent returns over the long-term — decades, at least. Given the stock market's historical upward trajectory, a broad stock market index mutual fund would fit the bill of an appropriate 401(k) investment option, Schlichter says. Under this framework, the argument against crypto's inclusion in workplace plans is clear. Although certain cryptocurrencies have delivered impressive returns, the asset class hasn't been around long enough to have proven itself as a safe option for investors. "There's no long-term performance history for cryptocurrency, and the short- to intermediate-term has been all over the place," says Schlichter. "This is not the kind of investment that people want and deserve when they need to have something that's protected for their years in retirement." The case against private equity is a little more complicated. As the name implies, private equity funds invest in a manner similar to mutual funds, but instead of holding shares in publicly-traded companies, they hold stakes in firms that aren't yet on the market. It's not hard to imagine how investors in such funds can earn impressive returns. Just think how well you could have done if you owned a piece of Tesla or Nvidia before the firms went public. For now, investment in such funds is typically reserved for accredited investors — generally those with annual incomes above $200,000 or a net worth north of $1 million. The argument from Fink and others is that opening 401(k) plans to these investments would allow everyday investors to get in on the same return potential that the only the wealthy currently enjoy. Fink says in his letter that pension funds, many of which invest in private equity, tend to outperform 401(k)s, but experts debate whether private funds actually outperform market indexes on a long-term basis. "There's nothing wrong with [nontraditional 401(k) investments], but you have to know what you own," says Sam Stovall, chief investment strategist at CFRA. "What is it that you're buying? What are your expectations for this investment? And if it goes through a slump, what are you going to do then?" For regular investors, who may not be familiar with how private equity works, there are a few key pitfalls to consider before buying. Investment fees eat into returns you earn from them. And while private equity advocates argue that their returns are worth it, they have a very high hurdle to clear. Under one popular model, a private equity fund may charge a 2% annual fee, plus 20% of the fund's profits over a certain threshold. Compare that with an index fund, which mirrors the return of the market while charging fractions of a percent in fees. "They're almost free these days," says Schlichter. Let's say a group of employees want to pull money out of their 401(k) plan. If they own a stock or bond fund, that's generally an easy ask. Stocks or funds that you ostensibly own are sold and you get your cash. That's not so easy with private equity, which often has set holding periods and limits on how much investors can redeem. "If there's a desire to pull out of private equity, there isn't a way to actually sell that company or sell shares — there's just no market for it," says Charles Rotblut, vice president of the American Association of Individual Investors. That could mean that owners of private equity funds in 401(k)s could have trouble selling shares quickly, either to raise cash or to buy another investment. Or, Schlichter posits, such funds could choose to keep some cash on hand for redemptions, instead of investing it, which could dampen returns. Private equity funds aren't as heavily regulated as exchange-traded funds and mutual funds and are therefore generally less transparent about their investment strategies. That may leave everyday investors at sea as they try to understand complex strategies, which may include investing with leverage, trading derivatives or taking highly concentrated positions in private companies. None of that is to say that, over a period of decades, a particular private equity fund won't outperform the market. But when it comes to your 401(k), the message is simple, says Schlichter: "If you don't understand the investment, you shouldn't depend on it for your retirement assets."
Yahoo
13-06-2025
- Business
- Yahoo
Private equity wants in on your 401(k). What you need to know before investing
Chances are very good that your 401(k) does not currently offer you access to private equity investments, which, as the name implies, are investments in companies that are not publicly traded. The question is, will that change in the next few years? And, if it does, is it worth it for you to invest? Large company pension plans and university endowments — both of which have very long time horizons — have invested for years in private equity and private debt funds. But 401(k)s typically haven't offered those options to plan participants. In November 2024, only 2.4% of 401(k) sponsors said they added a private equity investment option to their plan, according to a weekly poll question from the Plan Sponsor Council of America. That may be because employers are afraid of potential lawsuits if they include those options, which typically charge investors more than investment funds in public companies. And under the Employment Retirement Security Act (ERISA), employers have a fiduciary duty to ensure that investment options in your 401(k) are prudent and have reasonable fees, said Jerry Schlichter, founding partner of Schlichter Bogard, who pioneered lawsuits against plan sponsors for charging excess 401(k) fees. It also may be because private assets are riskier to invest in and information about them is opaque, since they're private. So there is less of a requirement to be transparent with investors about how a fund is doing on a regular basis. In addition, private capital options are considered illiquid investments because you can't take your money out whenever you want. And that may prove too constraining for retirement plan participants, who may need access to their 401(k) money for any number of reasons — including changing or losing a job, Schlichter said. There has been an increasing push to provide more private capital investment opportunities for retail investors and participants in workplace retirement plans like 401(k)s and 403(b)s. On the regulatory front, according to Jaret Seiberg, a financial services policy analyst at TD Cowen Washington Research Group, the Trump administration is likely to make it easier to access so-called alternative investments, which include private equity, private real estate and hedge funds. That could result in an executive order from the president requiring government agencies to expand access to such investments as well as rulemaking or guidance from the Department of Labor — which enforces ERISA — 'to expand the ability of individuals to invest in 401(k) and IRA accounts in alternative investments,' Seiberg said in a daily research note. There are far fewer public companies today than there were 30 years ago, as more companies remain private. For that reason, some say, if investors want to own the whole market and have a truly diversified portfolio, where some asset classes move up when others move down, they should have access both to public and private companies. In a recent conversation with Morningstar, BlackRock chief operating officer Robert Goldstein noted that the performances of publicly traded stocks and bonds have become more correlated than they used to be, and 'many of the less correlated assets are only accessible through the private markets.' That may be. Or not. For average retail investors, it could be hard to tell because there currently isn't a centralized way to track the performance and underlying investments of private capital funds and directly compare them to that of the stock and bond funds and indexes they're used to. That's just one reason why other market watchers and investor advocates worry about expanding access to private capital for average retirement savers. Among those squarely in the camp of those who say employee and retiree nest eggs won't be helped — and could be harmed — by having exposure to private capital is Benjamin Schiffrin, director of securities policy at Better Markets, a nonprofit seeking to promote the public interest in financial markets. 'Why is there a push to open up the private markets to 401(k)s now? It's not because workers want less liquid and harder-to-value assets in their 401(k)s. And it's not motivated by plan sponsors, who have long worried that exposing 401(k) plan participants to private market assets would violate their fiduciary duty to act in the best interest of the investors,' Schiffrin said in a statement. 'It's because private market firms are finding it harder now to raise money. Their traditional sources of funding — institutional investors such as pensions and endowments — have evaporated.' Indeed, for plan sponsors, including private equity among their plan's investment options will require a lot more due diligence from them in terms of investigating the underlying investments in a given fund and examining the fee structure, Schlichter said. 'This is fraught with danger. A company that puts private equity in its 401(k) is undertaking a serious risk of breaching its fiduciary duty.' Credit ratings agency Moody's this week put out an analysis, first reported by the Wall Street Journal, which cautioned that the accelerated push to give private capital firms access to the multitrillion-dollar retirement investment industry holds risk for everyone. 'Competition for retail investor capital within private markets will intensify as alternative asset managers roll out new partnerships and special funds to address this potentially vast, still largely untapped market,' the analysts wrote. 'But rapid growth within this still relatively opaque market also carries systemic implications.' One example, they cited, is the potential for a liquidity crisis. 'Unlike institutional investors, retail investors expect ready access to their cash. To help, managers are launching products with periodic windows of liquidity. But in volatile markets, retail investors may run for the exits, which would exacerbate liquidity needs and the risk of potential mismatches between a product's available liquidity and what investors are expecting.' The promise of investing in private equity is that the additional expense and risk assumed by investors can be rewarded with potentially strong returns over time. While it's hard to easily and quickly track private equity performance on your own, there have been academic and industry studies on it, and the results have been mixed, said Jason Kephart, senior principal for multi-asset strategy ratings at Morningstar. So, while you will likely pay more and have less transparency into what you're investing in, having a stake in private capital is no guarantee that you will enjoy meaningfully better returns in your portfolio. As for the diversification argument, Kephart said, it's worth remembering that just as with public companies, private companies' performance will be affected by external forces such as economic downturns, interest rates, geopolitical concerns, tariffs and supply chain issues. 'Being private doesn't shield you from the world,' he noted. And, Kephart added, 'It's not like the public markets are broken. Public stocks and bonds have paid off pretty well for those who've stayed invested.' Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
20-02-2025
- Business
- Yahoo
Making fast money on vending machines: Is it that easy?
(NewsNation) — More Americans are picking up side hustles, and vending machines are being touted on social media as a simple way to generate 'passive' income. How-to videos on TikTok and YouTube show vending entrepreneurs unloading bricks of cash. The short, punchy clips have racked up millions of views and explain how others can turn 'snacks into stacks' with little effort. With roughly 3 million vending machines across the U.S., the sector is worth an estimated $18.2 billion, according to The National Automatic Merchandising Association's (NAMA) 2022-2023 industry census report. Are millions of dead people receiving Social Security benefits? So, how hard is it to get in on the action? Vending how-tos on TikTok and YouTube have clicky, eye-catching titles that give the impression business is booming: 'He turned vending machines into a $500k business' (TikTok) '6 months in vending business and already made $10k' (TikTok) '2-Day Workweek Earns $700K – Vending Machine Business' (YouTube) One YouTube short with over 58 million views claims to show the start-up process from start to finish. The user says he bought five used vending machines for $4,000, loaded them up with inventory from Costco and then profited $750 per month for two hours of work. Social media makes getting started look easy: buy a machine, put it somewhere with foot traffic, stock it with stuff people want and swing by occasionally to collect your cash. The videos follow a similar pattern. Vending entrepreneurs unlock their machines, pull out the cash and see which snacks or drinks are running low. From there, influencers head to big box stores like Costco or Sam's Club to replenish their machines. Viewers get the sense that there's little time and energy involved.'The biggest difficulty is finding a good location and negotiating with the owner,' said Brandon Schlichter, who has two dozen vending machines across central Ohio. What are OASDI taxes? They help fund your retirement Schlichter estimates his machines bring in $3,000 to $3,500 a month — about $100 to $150 each. After factoring in costs like inventory and electricity, he said he makes around $2,000 in profit across all 24 units. 'It's a nice little side piece of income. I've done well with it,' said Schlichter, a serial entrepreneur who shares business tips with nearly 2 million subscribers on his YouTube channel 'Investment Joy.' Schlichter's machines are spread across laundromats, car washes and rental traffic is one factor to consider, but negotiating favorable terms with a building owner is just as important. There is no standard playbook. Some landlords charge rent to host a machine, while others may ask for a commission. 'If you're a good salesperson, you can get a location for free,' Schlichter said. 'It's a sales pitch to a business owner to get more foot traffic.' Manufacturing plants were the most popular location in 2023, making up 40% of the vending machine market, according to Automatic Merchandiser's State of the Industry report. Offices were the second most common location at 21.5%, followed by colleges and universities at 9.2%. John Talbott, a senior lecturer focusing on retail at Indiana University, recommends scouting out locations and talking with potential landlords before buying a machine. 'Before I would invest, I'd walk around and I'd have 20 deals cut with somebody that said, 'Yeah, you can bring one in,'' he you have a location, you'll have to decide what to put in it. One common mistake is stocking your machine based on what you like, which can be a 'recipe for disaster,' Schlichter said. 'I've run into people that went and bought thousands of dollars worth of product for a vending machine, thinking that they could convert a factory to healthy foods, and then everything expired,' he said. Simple savings: Ways to save money when eating out Cold beverage machines are the most common and accounted for 27% of vending sales last year, the most of any category, according to Automatic Merchandiser's report. Snacks were the second-largest product category (17%) by revenue, followed by candy (14%). As far as inventory, small operators often buy in bulk at stores like Costco and Sam's Club. 'I know people that are in high volume, high traffic locations, and they're taking that 25-cent bag of chips, and they're reselling it for $1.50,' Schlichter said. A final point: scale matters. The more machines you have, the more money you'll make. 'You're not going to really make a lot of money off one machine,' Talbott said. Vending machines have a relatively low barrier to entry, which makes them competitive. Schlichter said used machines can cost anywhere from $500 to $2,000 on eBay and Facebook Marketplace. New machines are more expensive, costing about $3,500 to $6,800 at Sam's Club. Small-time operators may be less common than social media makes it seem. The NAMA Foundation found that the 'typical' operator maintains 277 machines. NAMA estimates the typical operator generates around $6,000 in revenue per machine annually, about $500 a month. At the end of the day, Schlichter sees vending machines as a low-risk endeavor that, like any other business, requires hard work and practice. 'The only way that you learn is to go out and do it,' he said. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
