Pod Insights The Clark Howard Podcast 10.28.25 Ask An Advisor With Clark Howard & Wes Moss About this episode Clark Howard and Wes Moss: Is the Market Overvalued? and 401(k) Private Equity Debate Is today’s stock market dangerously overvalued — or still worth riding? In this special Ask an Advisor episode, Clark Howard and Wes Moss break down what’s driving record-high valuations, and how to stay invested without taking on too much risk. Then, the pair debate a big change coming to retirement plans: private equity in 401(k)s. Clark warns this could open the door to hidden fees and confusion for everyday workers, while Wes sees potential benefits if costs come down and transparency improves. Together, they offer a candid look at how investors can protect their savings — and their peace of mind — in an evolving market. All this and more on the October 28, 2025, Ask an Advisor episode of the Clark Howard podcast. Submit your questions at clark.com/ask. We hope you enjoy our weekly Ask An Advisor episodes. Let us know what you think in the comments! Learn more about Wes: BOOKS BY WES MOSS Wes Moss, CFP® Wes Moss - Clark.com Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
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1:04 Speaker 02 Hi, Clark Howard here with a special edition of Ask an Advisor with Wes Moss.
1:12 Speaker 03 Hey, Clark Howard. Who's the advisor? You or me?
1:14 Speaker 02 You are. And I gotta tell you why we're here. This is really funny because Wes and I both have very strong opinions about investing, but he is a professional. He is an expert. I am an amateur at it, not really, but we approach it from very, very different styles. And Wes, I gotta tell you, we even did a poll on social media and our listeners and viewers so badly wanted you and me together to address two topics that we have confused the daylights out of our common audience, our shared audience. You know what they are?
1:57 Speaker 03 We're not supposed to be confusing people.
2:00 Speaker 02 I know. That's why we're here now.
2:02 Speaker 03 That's probably my fault.
2:03 Speaker 02 To try to take, no, to take the fog we've created and see if we can lift that fog or if we even confuse people even more.
2:12 Speaker 03 I don't know. It could be the latter.
2:14 Speaker 02 Well, let's see what happens.
2:15 Speaker 03 So what is the fog? What's the, what do you think the main confusion is?
2:18 Speaker 02 All right. So first. The alleged overvalue of the stock market.
2:23 Speaker 03 Okay.
2:24 Speaker 02 And then the second is private equity inside 401ks. I have been so unbelievably negative on this. I mean, like, just, just trashing it. Well, I trash private equity anyway.
2:41 Speaker 03 Yeah.
2:41 Speaker 02 But private equity being inside 401ks, I'm like, could they come up with a worse idea? And then you do a podcast and YouTube show about, this would be so fantastic to have private equity inside 401ks.
2:57 Speaker 03 Whoa, whoa, whoa, okay.
2:58 Speaker 02 No, no.
2:59 Speaker 03 You're so black and white. You're right. I do, I think it's a good thing.
3:02 Speaker 02 But see, that's how our, our listeners and viewers that we share. They're like, wait a minute.
3:08 Speaker 03 Wait a minute.
3:08 Speaker 02 Clark just said, blah, blah, blah. And then you're saying, yeah, this is gonna be wonderful. And so I want us to address these from our two perspectives together and see if we can lift the fog that we have jointly and separately.
3:26 Speaker 03 We've created.
3:28 Speaker 02 Okay. What do you think?
3:29 Speaker 03 I think that's a really good topic. I love this topic.
3:32 Speaker 02 Well, let's start with the stock market.
3:34 Speaker 03 Let's start with that.
3:35 Speaker 02 Okay. Stock market overvalued by a huge amount or what?
3:40 Speaker 03 There was a economist who is a very skeptical economist. His name is Mohamed Al-Arian and he was on this week.
3:49 Speaker 02 Is that how you say his last name? Oh, man, I read quotes from him all the time.
3:54 Speaker 03 What do you call him, Al-Areen?
3:56 Speaker 02 I don't know. I look at it, doesn't sound like that when I think of it. But he's, he's really brilliant.
4:03 Speaker 03 He's brilliant and he's a pretty skeptical guy, too. He's not a pound the table bull type person, meaning some analysts, maybe Ed Yarndeny is an example, who's, by the way, been mostly right most of his career. You almost know when Ed Yarndeny comes on, he's, he's saying, the market's great and it's going higher. The market's great, it's going higher. Mohamed Al-Arian doesn't do that. He is very skeptical and he's very, very cautious typically about the market. And he was asked the other day about, are we in an AI bubble? Is AI creating a bubble? Is the stock market in the bubble? So talk about a confusing response. He said this, he said, yes, we're in a bubble. We're in an AI bubble. But he said, it's a rational bubble. Can you believe that from Mohamed Alarian? He said, we're in a rational bubble.
4:47 Speaker 03 There's no such thing as a rational bubble.
4:49 Speaker 02 Right, so let's go back in the Wayback Machine, 25 years.
4:55 Speaker 03 Yes.
4:56 Speaker 02 A lot of our listeners and viewers were not thinking about investing. They may not have even been born yet 25 years ago. And we went through the dot bomb.
5:08 Speaker 03 I remember it well.
5:09 Speaker 02 And the more a company lost in quarterly earnings, the more their shares went up. And I kept remembering, and it's where this whole phrase, but this time is different, became such a buzzword on Wall Street. And, you know, those shares kept going up and up and up and up. There was something called Webvan.
5:31 Speaker 03 I remember that.
5:32 Speaker 02 And pets.com, among others. And so they were going up like a rocket till it ran out of fuel. And then what happened?
5:42 Speaker 03 Straight back down to earth.
5:44 Speaker 02 Yeah, and people just got wiped out. And so there were all these analysts then in the late 90s saying, yeah, well, this time's so different. And this is such a different thing with this dot com thing and this commerce, that it's just gonna keep going up. And, you know, don't look at any traditional valuation measurements because it's different. And we're not hearing the same exact commentaries, but we're hearing similar kind of verbiage to try to convince investors that, yeah, it's great. We're throwing these trillions at these AI tools.
6:25 Speaker 03 Well, okay, so there's a couple of things. So I don't think it's ever really different. It's always some microcosm of what has happened before. And what happened during dot com was that we had a market, to your point, where we had companies not only not earning, but losing more and more. What we're seeing in this environment is, and there will be players that are wiped off the map, that are, they've raised capital, they're AI focused, and they're never going to earn back the money, or they're never going to be as valuable to another company to pay them for their AI technology or their version of AI. And I think we're going to see companies that just go away, just like we saw in dot com. So I think that there are going to be a lot of similarities. What's happening in this environment, though, is
7:08 Speaker 03 rather than a bunch of borrowing, we have a group of companies at the top of the stack of the market that are so profitable that they actually do have money to invest in AI. And it's become almost this AI arms race. There's an article this week in the Wall Street Journal, these data scientists and AI people feel like they're at war with each other, and they're working 100 hours a week.
7:33 Speaker 02 I saw that, too. I'm like, okay.
7:35 Speaker 03 100 hours a week, because they feel like they're at war.
7:38 Speaker 02 But how in the world can a human being sustain working almost 13 hours a day, seven days a week, never any time to breathe?
7:48 Speaker 03 Maybe if you're in your 20s, Clark, but not at my age, and probably not at your age.
7:52 Speaker 02 Well, definitely not at my age.
7:54 Speaker 03 Okay, so, all right, so what we have here in this environment, you have companies that are spending money, but they're spending their free cash flow, they're spending their earnings, and they're saying, we don't want to be left behind, and because we think AI is very real, very real for productivity, so we're spending, as opposed to having even more massive profits, we're choosing to invest and make sure we don't get left behind. So one thing in this environment is that there are companies, and as opposed to just borrowing and not earning money and losing tons of capital, what they're doing is they're taking their massive earnings that they're using right now, or that they're gaining, and they're trying not to be left behind. Now, the irony there is if AI as a technology turns out to be a bust.
8:37 Speaker 02 Oh, it won't be.
8:38 Speaker 03 That's going to be a nightmare for those companies. But to your point, the odds are that AI will not be a bust. It's still, and I have this conversation every day, I think about what Walmart's doing with AI, and we've gone from this phase of crawling with AI, as in crawling like a baby, and just kind of using it and seeing, oh, it's pretty neat to be able to utilize AI, to seeing, I think companies are now walking. With AI and Walmart is implementing Internet of Things, IOT sensors on every pallet they have in the country. It's 90 million pallets, 4,600 stores. And because of AI and utilizing the Internet of Things, which are just little sensors that can
9:18 Speaker 03 track almost anything, they can now track every shipment to down to the square inch and they know exactly where their products are. Imagine what that could do for efficiency. Now, does it?
9:28 Speaker 02 And, and it reduces internal theft because, you know, shrinkage is such a big problem for Walmart and other big retailers and the IOT devices are going to reduce the amount of theft that goes out the loading dock.
9:44 Speaker 03 And never even makes it on the shelves.
9:47 Speaker 02 Right. And so, so, I mean, it's, it's an efficiency thing and it's also going to be a profit machine because every item that's stolen out the back of the loading dock is money that you've got to make up. It goes straight from profit to loss and that is going to be absolutely reduced. So, I mean, yeah, no doubt that these things are, are going to be awesome. And so.
10:15 Speaker 03 But will they be awesome enough to make a million dollar investment or a hundred million dollar investment worth a billion dollars eventually? That is the jury that's still out.
10:26 Speaker 02 Okay. So let's go back in the Wayback Machine again to the dot bomb.
10:31 Speaker 03 Webvan, man, I remember that.
10:32 Speaker 02 Okay. So I remember in my TV work, I go out.
10:37 Speaker 03 They, they were Atlanta, right?
10:38 Speaker 02 I don't know where they were based.
10:40 Speaker 03 Okay.
10:40 Speaker 02 Probably Silicon Valley where everything back in dot bomb happened. So I'm out at a webvan facility and I'm watching this. So try to imagine in 1998 or nine or whatever, seeing the automation that they had in place. And it was unbelievable. And so.
11:02 Speaker 02 If you don't know what this was, it was the first internet-based automated grocer. And you'd go in this warehouse and
11:13 Speaker 03 Early version of Instacart.
11:14 Speaker 02 And so, well, except this was all automation because you'd have these carts that were very early with the bullseye kind of thing. Instead of, instead of the pricing labels, they had the full QR thing. And they'd go down, they'd know, okay, we gotta get six bananas. And it would go down and it'd grab six bananas in this giant warehouse. And then it would go get three Honeycrisp apples and on like that. And so you had all this technology and all these companies that were what I call successful failures. They led to the e-commerce era we're in now. But how many of them actually survived and thrived? Very few.
11:57 Speaker 02 And you always end up with, in capitalism, you end up with a very small number of survivors and thrivers out of these big number of players.
12:07 Speaker 03 And I think that's probably, I don't think history will be any different here. I think there will be thousands of AI-related companies and there will probably be a dozen or two that really make it. And they're going to learn from all these failures.
12:20 Speaker 02 A dozen or two dozen?
12:22 Speaker 03 I think, yeah, I do because
12:24 Speaker 02 Will survive as big players?
12:25 Speaker 03 I think what will happen is that the big, the mag seven, which are the big companies in the S and P 500, Microsoft, Apple, Meta, Google, Amazon, et cetera. They're so giant that they will be able to find these, on a relative basis, small, tiny companies that they can swallow up quickly. So that I think that the winners will get swallowed up by the big companies. And maybe there'll be a few companies that emerge and then their own new company that we haven't even heard of. And then now they're a multi-billion dollar company in three, five, 10 years from now. But I think that a lot of the little winners on a relative, and everybody's little relative to the mag seven. These are trillion dollar companies.
13:07 Speaker 03 So if you think of a company that's two trillion, three trillion, four trillion dollars, like some of them, Microsoft's a four trillion dollar company. Nvidia is a four trillion dollar company or close to it on both of those cases. A $10 billion company is just a speck of sand to them.
13:21 Speaker 02 Right.
13:21 Speaker 03 So they can, I think you'll see a lot of consolidation, but let me go to some of these numbers here. And this goes to overvaluation. The weight of just those 10 stocks, which are mostly the mag seven. Is now almost 40% of the total market. That's incredible. That's never happened.
13:36 Speaker 02 We've never had that level of concentration.
13:38 Speaker 03 Now, it's usually pretty high because the S and P 500 is top-heavy, market cap-weighted. It's usually in the 20% range, but here we are close to the 40% range. Again, just add up the value of the 10 companies at the top of the market, and we've never seen the market this top-heavy. You asked about valuation. Let's talk about valuation. And valuation is important because this is what we're paying per dollar of earnings. So if we pay $10 per share or dollar of earnings, 10 times that multiple, or price earnings multiples 10, and that's on a relative basis, really low. On average, it's been about 17 to 18 over the last 30 years, 40 years, 50 years. Today, the market in general is trading at 25 times earnings.
14:23 Speaker 03 Now, that's not as bad as we saw in the dot bomb, but it's getting closer.
14:28 Speaker 02 Right.
14:29 Speaker 03 Back then, we were close to 30. Now we're at 25. Now, so I think that's the bad news, and to your point, we're getting overvalued. If you look under the surface, though, and you look at the average stock, so if you don't weight the S and P 500 by size and you just weight it equally, so equal-weighted, we've had a lot of great listener questions about equal-weighted markets versus cap-weighted markets, the market is trading at about 20 times. So 20 is a little high, but it's not extraordinarily high.
15:00 Speaker 02 All right, so let's talk about that.
15:01 Speaker 03 Yeah.
15:01 Speaker 02 Because I'm index funds, index funds, index funds, all day long. So you're not going to be in an equal-weighted thing, and the money so heavily is geared towards the things that have pushed the valuation so high. So in my book, here's what I worry about. The market is priced, in my opinion, for perfection, no matter how you slice it. Because even if you take the equal weight, you're still a little above historical averages. But if you go to the money in the market, it's way above. Here's what I worry about. When market declines happen, it's always out of nowhere.
15:41 Speaker 02 We don't know as we're sitting here right now, the reality is we don't know what bolt of lightning comes in, what meteor hits the market and then suddenly you have
15:53 Speaker 03 A down 10, down 20, down 30.
15:56 Speaker 02 And so my big fear is that people are chasing the hot stuff. They're not doing market weight. They're overwhelmingly in AI this, AI that, and they're on all the, you know, they're on Reddit, they're on
16:12 Speaker 03 Chat rooms.
16:13 Speaker 02 And they're like really fired up and they're so dangerously unbalanced in what they're in that they're going to get their clocks cleaned when that meteor, whatever it is, hits the market because it's a when, it's not an if. I mean, look, I mean, you know, the history of bear markets and corrections and all that.
16:33 Speaker 03 So you bring up two really good points. One, there's, there's a difference between being balanced and having a structure to your portfolio where you have some safety assets and you have some highly diversified stock assets, even if they're market weighted, I would take at least being highly diversified in market weighted different indices, large companies, middle size, small. Where you, you're exactly right. Where I see people really get burned and it's hard to just hold on for the ride, which we'll get to in a second, is when they are layering. Think about what we're seeing right now. I think the people that ultimately can get burned are
17:12 Speaker 03 the ones that are laying a multi-layered tech kick. They own the S and P 500. Well, S and P 500 is 35 to 40% in tech already. Then they're laying on another tech ETF and an AI ETF and three or four big AI oriented companies. And that's what happens, that's what really happens and damages investors. It's not so much the diversified investor that has to deal with a 20%, 30% correction that we need to be able to muscle through, ride through and have the patience through. It's the folks, Clark, that you're kind of alluding to here that are layering on risk upon risk. And the next thing they know, if you were really to look under the hood,
17:54 Speaker 03 their whole portfolio is tech. And when that one sector has a big correction, it's not 20 or 30% and it's, it's very difficult to ride that through. That's when you get 50, 60, 70, 80% losses that are almost impossible to come back.
18:08 Speaker 02 And then they get burned. And they're like, well,
18:12 Speaker 03 I'm out.
18:13 Speaker 02 I'm out. And they don't go back in and they miss the future. So that's what I'm so worried about is that there's so much information available now and people gravitate so quickly into
18:28 Speaker 03 They get overextended.
18:29 Speaker 02 Overextended and overweight. They're even doing these leverage things where they're doing 2X or more into this, into some of these AI things. I'm worried that people don't understand that, that, uh, what was the thing Greenspan said? Like 30 years
18:45 Speaker 03 Irrational.
18:46 Speaker 02 Irrational exuberance. So, I mean, I want to know, what would you say to somebody? So that they now, you can't bulletproof your portfolio.
18:57 Speaker 03 Right.
18:57 Speaker 02 And you don't go to the sidelines, but how do you do this methodically? If, let's say I'm more, a more casual investor, what should I be doing so that, yeah, correction's going to come. A bear market is going to come. It always does. What should I be doing to overcome those impulses that all the social media, traditional media, everything's like pushing people to put themselves at too much risk.
19:27 Speaker 03 Yeah. Think of it almost as that the light gets brighter and more moths end up to the, the bulb until it cracks. And what you're trying to protect against, and here's where my advice would come in, is that I think it's hard enough for investors to stick with and stay with a balanced portfolio that's highly diversified. Again, these are just the fundamentals of investing, highly diversified, lots of different categories in the stock section, and then a healthy amount, whether that's 10% or 40% or 50% of safety assets. I could think of this as dry powder. This is not private equity, dry powder. And that in itself creates a situation where even if markets go down, you're usually
20:12 Speaker 03 going to be, have less pain because the pain of loss is twice or three times worse or more impactful than the joy of gain. Meaning, so we know that. So my advice is to try to limit that draconian loss before we go into the next major drawdown. And I think that means a highly diversified balanced portfolio that will still go down in a stock market correction, but it allows you to ride through and not sell out just for the market to finally snap back. And then you miss both ways.
20:44 Speaker 02 So we're talking about behavioral economics here.
20:46 Speaker 03 This is behavioral investing.
20:48 Speaker 02 People emotionally who say, oh yeah, I can handle it. I'm fine. I'm great. And then the market starts cratering and the same social media and every other kind of media feeds into what becomes their panic and they sell out and they go into hibernation.
21:08 Speaker 03 Let me give a quick example of a study that originally started with Charles Schwab. They did a great study that looked at, I think they called it perfect timing and perfectly bad timing. So they did a study many years ago and our team kind of latched on to this and said, this is a great concept. So we now continue the study. Imagine if you're the the perfect investor and you know, you only buy when the market is at the very lowest point, the absolute trough, which we know is semi impossible. Let's just say you could do it versus the perfect, perfectly wrong investor who only buys when the market is right at its peak before a big correction. So those are the two investors. I call this
21:52 Speaker 03 participation versus perfection, because the third category we look at is just leaving money in cash, treasury bills. And I want to give you a couple of examples for our listeners. And this is the difference between being a participating and being in markets versus being a perfect investor. So it's participation, longevity, marathon, not sprint versus perfection and thinking you can time the market. So if I go back to, I'll do two quick examples. You mentioned the tech crash. We'll do that. Imagine back in the year 2000, right? Or the end of 99, year 2000. And this is when the S and P 500 fell 49% peak to trough.
22:34 Speaker 03 The peak was March of 2000 and the trough had finally bottomed in October of 02. So it was a long stretch down almost 50%. And we're going to use $10,000 here. If you put your 10 grand to work at the very bottom of the market and you just happen to know you had the newspaper of tomorrow, you had the Michael J. Fox Back to the Future newspaper tomorrow, and you nailed it and you put your $10,000 to work today, that'd be worth 134K. So it's up 13x. If you were perfectly wrong and invested your money, your $10,000 on the day before we started that crash, of course, you would have gone down 49%, it would be worth $71,000 today.
23:17 Speaker 03 If you had been scared and just chose not to participate in markets and just put your money in treasury bills or cash, it would be worth 16,000. So terrible timing still beat cash by more than four times. Now, how do you ride out that difficulty? That's where balance comes in because to your point, so much of investing, we think of it as dollars and cents and math, but it is behavioral. And one of the very best things we can do for our own retirements is to be able to stay the course. John Bogle, stay the course. And for some people, you're able to stay the course with stocks all the way up and all the way down and all the way up and all the way down.
23:57 Speaker 03 For most families that I've seen this now over 25 some years is that you need to have some semblance of balance for the overall pie that helps you stay the course. And that's why I think balance is so important. That's why I talk about dry powder. That's why I talk about diversification, which should try to eliminate the very real problem that you bring up, which is layering what is already working on top of what is already working so that you get a highly over your skis way ahead of your self-portfolio. And that's where people really get hurt. The balanced investor has to endure some pain, but the investor that gets overly concentrated
24:38 Speaker 03 thinking that every new technology is going to grow out of the sky, that's the investor that almost can't recover when there's a correction.
24:47 Speaker 03 And I think we, I think producer Chris is saying we wrap it there.
24:51 Speaker 02 Yeah, I think that's perfect to wrap there. And so the point is you, you can't become so myopic that you're only into whatever the hot flavor is.
25:03 Speaker 03 That's, that's diversification gets thrown out the window there.
25:07 Speaker 02 And so I think where we both confuse people, but where we both come back to is yeah, the market by historical measurements is overvalued. The question is what degree and which chart you look at. But the bigger thing is that people are putting themselves in danger by not following classic models of spreading out your risk.
25:34 Speaker 03 Balance.
25:35 Speaker 02 Balance, which allows you, when things do are on the roller coaster, come, you know, were you ever a roller coaster kid?
25:45 Speaker 03 Yeah, yeah, I did.
25:46 Speaker 02 Yeah, I didn't like roller coasters because when that, when my stomach would come, you know, up into my throat, I didn't like that. And investors don't like that either. That's why you got to be diversified. So I hope, I know this was a lot of stuff winding around that Wes and I talked about, but ultimately.
26:05 Speaker 03 Comes back to the basics.
26:06 Speaker 02 Right. That right now, if you look at what you got, and you're just way too much, every latest AI thing you've heard of, that's too much risk. And that's why you need to do classic portfolio balancing. And you're saying also, you talk about powder dry and all that, a certain amount of money in cash, so that you can have the patience to ride out the decline in a market and have money available that when the market does get really, really depressed and negative sentiment and all that, that you then at that point.
26:44 Speaker 03 Can actually put money.
26:45 Speaker 02 Can dollar cost average in.
26:47 Speaker 03 Exactly.
26:47 Speaker 02 Yeah. So coming up ahead, we're going to deal with something that we're going to be really at opposite sides of the room.
26:55 Speaker 03 Yes.
26:56 Speaker 02 I'll go sit in the next county when we talk about this. And that's private equity.
27:01 Speaker 03 Yeah.
27:02 Speaker 02 Cause that's something that private equity and 401ks.
27:06 Speaker 03 It's coming.
27:06 Speaker 02 Scares the daylights out of me. And yeah, it's coming. It's that light coming through the tunnel and it's not light. It's the train coming right at me.
27:15 Speaker 03 You think we're going to get hit by the train? I think we can in some way hop on the train.
27:19 Speaker 02 Well, that's what we're going to discuss straight ahead.
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29:39 Speaker 03 Welcome back to Ask an Advisor. I'm Wes Moss, along with the great Clark Howard. There was a comment this week on our private equity episode that said Wes is calling Clark out on his own show. And before the break, you hinted to, now, in fairness, I wanted to bring up the topic that private equity entering into 401k plans over the next, call it, couple of years is a giant change. So I think that's, that's part of the reason I think I wanted to bring it up is that it may, it's the first big change for 401ks since 401ks started. The question is, is it going to be good for investors? I try to have a balanced view on it. Private equity can be super risky, but I also think it could be a really good opportunity and open up a massive market.
30:22 Speaker 03 The 99.9% of people haven't been able to participate out. But you have another thought or angle why it may not be a good thing in 401ks.
30:32 Speaker 02 Yeah.
30:32 Speaker 03 But you haven't told me yet.
30:34 Speaker 02 Right. So private equity is such a big part of American capitalism and more and more worldwide capitalism. Companies don't want to be publicly traded anymore. They're privately held. And this works great for Wall Street, the big money center banks in Europe, in the US, in Asia. They love private equity. It can be more opaque. There's not as much disclosure what's going on. And when a lot of brokerages are pushing private equity, they're selling a lot of these blind pools
31:12 Speaker 02 where people are putting money in, big commissions, big fees. They don't even know what the money's going to be in. Because it's so magical. It's so secret. It's behind this curtain.
31:26 Speaker 02 And so what I'm freaking out about with it being in 401ks is one of the great things that's happened, and my hero Vogel is really one of the great influencers on this, is that today, the ordinary investor, somebody who's working at a regular job, who doesn't make a lot of money, can put money into this 401k, hopefully the Roth version, because most people don't make enough money that it makes sense to be traditional 401k, and they can put money into a fund that has virtually zero expenses to it. So a dollar invested, whatever it earns, almost all of it's going to them.
32:10 Speaker 03 99.999% goes to work.
32:12 Speaker 02 Right. But the problem with private equity is the commissions that the ordinary investor faces are humongous. And not only do they pay these massive fees upfront, but then 20% of the profits that whatever they're in make are grabbed by the private equity player. And so, yeah, private equity at this point is probably bigger in American capitalism than publicly traded companies. But the deck always seems stacked to me against the small investor, which is why historically, going into private equity, you had to be a sophisticated
32:56 Speaker 02 investor who's wealthy already to go into private equity. Now you're talking about somebody who maybe is making 30, 40, $50,000 a year, who's, they're taking hard-earned money and throwing it in this 401k, and they're playing with fire because the private equity thing is a whole different animal. And I have enough trouble explaining to people what the choices are, the plain vanilla choices in a 401k, because they're not normal investors. And then you're throwing this private equity thing on top where they say, "Trust me, trust me, this is gonna be great."
33:36 Speaker 03 Let alone Blue Al Infrastructure 17 Fund that we're going to eventually go build a bridge with, your money. And you're right. So this is why private equity is... In some respects, it goes, it takes us back to 30 years when the only thing that we could invest in, or 40 years, were managers. Remember those days?
33:57 Speaker 02 I do remember.
33:58 Speaker 03 Hey.
33:59 Speaker 02 Expensive managers.
34:00 Speaker 03 Peter Lynch. I'm choosing this fund because he's a good manager and I'm putting money into this fund in a lot of ways, not knowing what Peter Lynch will buy in the future.
34:11 Speaker 02 Because he was supposed to be the most brilliant investor in the history of the world. And he was very good.
34:18 Speaker 03 He was good. He was good. So the same thing with the popular mutual funds. I remember Bill Gross managing the PIMCO bond fund. He was the, just put money in the PIMCO bond fund because Bill Gross eventually will be buying the right bonds for you.
34:30 Speaker 02 You're betting on the right jockey.
34:32 Speaker 03 And it does take us back, Clark. It takes us back 30 to 40 years when it comes to that kind of leap of blind faith saying, now, in fairness, these funds that will eventually become a sliver probably of a target date fund, is I think how they're going to work inside of 401ks. They are going to be, it's going to be a collection of managers that have done private equity probably for 10 or 20 or 30 years, that supposedly, and we don't even know how this is going to be structured yet, supposedly have a good track record. That I think is what is supposed to happen. But to your point, there are a lot of things to worry about. The fees. Now, I've participated in private equity for many,
35:14 Speaker 03 many years, and I have noticed over the last five, that the fees have come down. So it's not, it's actually a little more rare now to see a fund that charges 2% and then 20% of profits. That used to be the model. And there are still, there's still some out there like that. But just like with mutual funds went from 2% to 1% to a half a percent to 0.1, private equity expenses have been coming down because people are sensitive to it. So now, it would be more common to see a private equity fund that's more like 1% or even a little less per year, or 10% of profits, or 5% of profits. So I think the devil, though, will be in the details. How are we going to really access this?
35:58 Speaker 03 You may, you bring up another good point is that this used to only, private equity investing and venture capital investing used to only be for accredited investors or qualified investors. And these are people that have to have $5 million or more to even to participate. How, how are they getting away with putting private equity in 401k plans? The rationale is that the 401k plan is the investor. So that now they can own the private equity and then the participants making $30,000 to $50,000 a year, they can participate.
36:30 Speaker 02 So here's where I freak out. You take the 403B plan.
36:34 Speaker 03 Yeah.
36:35 Speaker 02 That the insurance industry has made the worst retirement plan in the history of planet earth.
36:41 Speaker 03 Because of expenses.
36:42 Speaker 02 Expenses, commissions.
36:44 Speaker 03 Lockup.
36:45 Speaker 02 Conflict of interest. And they are treating our nation's school teachers as cannon fodder. They're just exploiting them, cheating them, charging these massive fees to the point that a hardworking teacher trying to build up financial security for his or her future ends up with less money at the end of the year, even in a good year for the market than they started with because of all.
37:10 Speaker 03 The layers.
37:11 Speaker 02 The layers.
37:12 Speaker 03 Seven layer dip of fees. That's what I.
37:14 Speaker 02 And so that's where I fear here because you're talking about something, private equity has always been kind of hidden behind a curtain. Right. And so that's what I worry about is the lobbyists running this through the administrative process because Congress, you know, the president did the executive order, the Congress will pass whatever law, the administrative agencies listening, having their ears bent by the industry, by the big players, the big money crowd.
37:48 Speaker 03 Private equity lobbyists.
37:50 Speaker 02 That they're going to do this in a way that the little guy is gonna get taken advantage of. And I would use stronger language. I would use stronger language, but this is a family podcast here. And so that's my thing is that you deal with, you're a really sophisticated guy, you deal with wealthy people who have a lot of sophistication to them. They may have run their own businesses. They understand risk. And I really worry so much about what's gonna happen.
38:26 Speaker 03 The masses of America.
38:28 Speaker 02 To the average American, just trying to have a little piece of American capitalism and build up some financial security, that what you said, it's the devil's in the details.
38:41 Speaker 03 Yeah.
38:41 Speaker 02 I am gonna be sitting here, yeah, let's see, are they gonna 403B this? Or are they gonna Vanguard this?
38:49 Speaker 03 Yeah.
38:49 Speaker 02 And so there's a big range between the absolute terrible horrific financial corruption of the insurance industry with the 403Bs and what they've done to our nation's teachers and people working nonprofits, and then what Vanguard and others have done to make investing fair for the average person. So that's why you talk about private equity. This is like, this is like a fire that I'm worried gasoline is gonna be poured on people's own money.
39:23 Speaker 03 Yeah, you're worried about the fox running into the hen house. And the hen house has been more and more protected over the years for the average 401k. It's gotten less expensive, more options, more transparent, better reporting and viewership, more technology around helping people plan within their own 401k. So again, if we fast forward a year from now, or two years from now, and there's private equity as an option, and this is a good thing, it's gonna be, these are gonna be options within probably target date like funds where if you're in a 401k plan, you can choose to one of the target date funds that likely has a sliver of private equity, maybe a big sliver, but it'll be your choice. And I think that's the good news here.
40:05 Speaker 03 I don't see the addition of private equity polluting the entire stream, because you as a participant will be able to choose if you wanna go into this. And hopefully we'll have the disclosures and we'll have the transparency to say, look, this is an expensive sliver. Do you really wanna participate? Or? Do you want to stick with more traditional models that are ultra low cost, which may still be the right path for a lot of folks? So we'll see, we'll see that I think the option will become available.
40:36 Speaker 02 And see, here's what I think so important about us doing this is we did really confuse viewers and listeners. They were like, wait a minute, wait a minute. I listener watched Clark and he says, private equity is like the devil's workshop. And here you are saying, this is so great. We're going to have private equity in retirement accounts. And so it really, private equity by itself is an investment vehicle is not an evil enterprise.
41:09 Speaker 03 That's correct.
41:09 Speaker 02 Some of the ways for some private equity firms treat the employees at companies that they acquire really badly.
41:17 Speaker 03 Yeah.
41:17 Speaker 02 But as an investment vehicle, it's not by itself a bad thing and it can be a good thing. The gap between us is you're much more trusting than I am about how this would be implemented.
41:32 Speaker 03 And affect the whole system.
41:34 Speaker 02 Everyday person.
41:34 Speaker 03 Yeah, you're worried about the entire ecosystem of retirement plans getting expensive, polluted, illiquid.
41:41 Speaker 02 Illiquid. See, that's, that's a big word. That's right.
41:46 Speaker 03 Can't get to the money.
41:47 Speaker 02 And it just explained for people who don't know, how long might they not be able to touch their money? And private equity, five years, 10 years?
41:57 Speaker 03 Traditionally, I'd say it's anywhere from a long time to forever. It's, it's.
42:03 Speaker 02 Thank you. I just wanted to make that point.
42:05 Speaker 03 It's, it is, it's real. And again, that's one of the drawbacks. Now, it depends. There are a lot of categories in private equity, just like there are a lot of different categories of mutual funds. The traditional, what I would call old school private equity is a very long cycle. Because again, to your point, you blindly put money into a manager who has a track record of buying private companies. It takes forever. It might take three years for the fund to even buy the companies. That's three years. Then it takes another three to five years to make the companies more profitable. So now you're at seven years.
42:38 Speaker 02 Or bankrupt them out.
42:39 Speaker 03 True.
42:40 Speaker 02 Which just happened a lot.
42:41 Speaker 03 Now we're eight years in. And then think about how long it takes to sell a company that's a hundred million or 200 million or $500 million private company. Well, that takes a long time to find a buyer. So that could take for them to buy all the companies they want to buy, then turn them around, then sell them. That's where you get these 10 to 12 year lead times.
43:03 Speaker 02 Where, where somebody with normal investments in a 401k can change their allocation.
43:09 Speaker 03 Every day, tomorrow.
43:11 Speaker 02 Right. And so I, I'm not sure that the average person in a 401k has, has any idea that they would put money in. And by the way, they can't see that money again for 12 years.
43:23 Speaker 03 It's a long time. Now, there are now a lot of, there are a lot of other layers and versions of private equity that are much shorter. That could be what they're, they're looking at doing are these open ended private equity funds where money comes in, they're buying a company. It doesn't just, it's not a closed fund, if you will. What they're trying to do in the 401k sense is have just a running fund, almost like a mutual fund. Money goes in, they buy a company and they may be selling a company a year later. So there may be more liquidity. It still remains to be seen how it's implemented. It really is going to be about the details. It'll be about the disclosure. It'll be about the transparency and it'll be about the fees. And we'll see, does the whole system, the
44:07 Speaker 03 ecosystem get polluted? I would say, I see where you're coming from. I, I'm going to remain positive and say that it's, it does not. I think it's going to be a benefit, but I'm going to be watching real close, Clark.
44:21 Speaker 02 And I hope you're right. You know, the negativity that you're hearing from me is based on history. And I just, I get so upset about people who get taken advantage of, who don't have a lot to start with, and they get rooked.
44:41 Speaker 03 Yeah.
44:41 Speaker 02 And they come into this in a 401k. You know how most people figure out what they're going to put in their 401k?
44:48 Speaker 03 They look at their, the three-year rate of return.
44:50 Speaker 02 No, they, they ask, hey, you know, that guy, Jim over there.
44:54 Speaker 03 He knows money stuff.
44:55 Speaker 02 He spends a lot of time fooling around with investors. Hey, Jim, what should I put my 401k in? You would not believe how much it's like that.
45:04 Speaker 03 Yeah.
45:04 Speaker 02 I mean, people aren't looking at charts like you're talking about.
45:08 Speaker 03 Yeah, you're right. Well, I think the jury's still out. The, the other thing too, though, is that if you look at how this, it's, this has been a, the statistic is 89, 89% of businesses, large businesses in America, defined by a hundred million dollars of revenue or more, that's considered large. Almost 90% of them, nine out of 10 companies in America are private.
45:30 Speaker 02 Right.
45:31 Speaker 03 So the, why should just the point one percenters be able to access that? When the other 99.9 can't, and the point one is saying, well, I'm doing this because these are 15 to 20% returns per year? Like, why should only the point one be able to get that when everybody else gets locked out?
45:51 Speaker 02 No disagreement at all. The problem, as you've said, and is it so clear? Is how's this actually going to play out? And that's my fear. So I love that we did this because if it helps you understand that we don't disagree that private equity is, and privately held companies are obviously a key engine of worldwide capitalism. It's for a small investor, this could be, depending on how it's done, a stacked deck upfront against you,
46:27 Speaker 02 based on lack of disclosure and fees, and also have restrictions like having to hold something for a long, long period of time, that would make this. Bad, ugly for a regular, small investor. And so that's really where I come at it so negatively. And I do have a beef about how a lot of these private equity companies really harm the employees at the companies that they buy.
46:59 Speaker 03 Yeah.
46:59 Speaker 02 That it is, I mean,
47:01 Speaker 03 It is brutal.
47:02 Speaker 02 It is take no prisoners.
47:03 Speaker 03 It is.
47:04 Speaker 02 Capitalism and it is mean spirited towards human beings.
47:09 Speaker 03 It's the last thing you want to have happen is a private equity company buy your family culture wonderful company because it will, it will not stay that way.
47:18 Speaker 02 But that's, I mean, that's the thing about humanity that I always worry about. But in terms of money, if you look at capitalism as just a pure event, obviously private equity is ultra important and meaningful for investors. It's just how this is going to play out for everyday people.
47:40 Speaker 03 I'm freaked out. We're on watch.
47:43 Speaker 02 Well, thank you so much for letting me be a guest on your podcast.
47:46 Speaker 03 So much. Don't tell Krista that it's so fun to have you here. Cause our, no, we get a lot of,
47:53 Speaker 02 People miss her. Hey Krista, can you just come in and wait? Cause you know, everybody really wants you here, not me. Not true. Here she is. Great job, guys. Great job.
48:03 Speaker 03 Thanks Krista.
48:03 Speaker 02 Okay.
48:04 Speaker 03 Thank you, Clark.
48:05 Speaker 02 It was great.
48:10 Speaker 04 Your sausage McMuffin with egg didn't change. Your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5, only at McDonald's for a limited time.
48:22 Speaker 05 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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