Company 401(k) plans are a maze of unrecognizable, undecipherable, and confusing mutual fund options. A study last year revealed that most individual investors would rather search for health care options than make investment management decisions in their company 401(k) retirement plan.
We live in an age of specialization and sophistication. We can’t do our own brain surgery, build our own house, or fix our own cars. We earn a living at what we are good at and access experienced advisors in other areas of our life.
There is a growing population of investment advisors who specialize in providing investment advice to individual company 401(k) retirement plan participants. These niche investment advisors can provide the three most important things necessary for a better outcome in a company 401(k) retirement plan account.
First, they completely analyze your company 401(k) retirement plan menu. I have seen company 401(k) retirement plan menus with over 300 mutual fund options. Who on earth has time to analyze something like that?
Long term investment success in a company 401(k) retirement plan requires concentrated ownership of the best mutual funds available during stock market advances. An experienced investment advisor can help identify those mutual funds.
Second, mutual fund analysis only goes so far. Eventually investment management decisions have to be made. Your company 401(k) account has to reflect the amount of risk that you are willing to take with your retirement money.
The U.S. economy and stock market go through periods of growth and contraction. There are usually extremes on both ends of those cycles. Your company 401(k) retirement plan account has to adjust for those cycles. Stock market risk is a moving picture; your investment risk level moves as well.
You don’t need a bunch of numbers on a colorful pie chart. You need a 401(k) advisor who can verbalize a game plan for the preservation of your most important retirement asset.
Third, you are not locked in to your default mutual fund menu. The days of high cost and poor performing mutual fund options are coming to an end. More and more companies are offering a SDAB (self-directed brokerage account) menu option in a company 401(k) retirement plan account.
The rap in the financial media is that self-directed brokerage accounts should only be used by the most sophisticated individual company 401(k) retirement plan participants. The message is that only individual company 401(k) retirement plan participants who engage investment professionals should think about using the SDBA option.
That is nonsense and shortsighted. In most cases self-directed brokerage accounts offer more investment options, lower annual costs, and the chance for improved investment performance.
Any individual investor who has the experience and sophistication to succeed in today’s economy can handle a company 401(k) retirement plan self-directed brokerage account option with the help of an investment advisor.
Ric Lager
Lager & Company, Inc.
