Last week, I did a review of the company 401(k) retirement plan account mutual funds holdings for a parent that I knew from my daughter’s high school dance team. I thought that what I found would make for an interesting blog post.
I reviewed the most recent quarterly statement provided to me by the parent. I quickly found the summary column that is now required by law to be disclosed on every company 401(k) retirement plan statement.
The column provides the annual operating expenses for each mutual fund option in a company 401(k) retirement plan menu. Ideally, you are looking for annual expenses below 1%.
As expected, this parent was 100% invested in actively managed mutual funds. These mutual funds are much more expensive to own than index mutual funds. There were two index mutual funds available on this company 401(k) retirement plan menu.
If the company 401(k) retirement plan mutual funds that you currently own have annual mutual fund expenses that total more than 1%, you might want to consider different mutual fund option.
I disclosed to the parent that she was paying over $300 dollars per month in annual fees to own the mutual funds in her company 401(k) retirement plan now. In addition, three of the four mutual funds that she owns had underperformed the other mutual funds available to her on her company 401(k) retirement plan menu for the last five years running.
This parent was paying too much in annual mutual funds fees and receiving some of the worst investment returns available in her company 401(k) retirement plan.
Do you get upset when your bank charges you a service fee? So do I. Think about your company 401(k) retirement plan mutual fund annual fees as a service fee. Make very sure that you are getting the annual investment performance that you are paying for in annual fees.
Ric Lager
Lager & Company, Inc.
