It’s Spring. The weather is warm. And the masks are slowly fading away. It’s time to take a more open-minded and unconventional approach to your company 401(k) investment management strategy.
There is an easy option available to avoid the poor mutual fund options that populate the majority of company 401(k) retirement plan menus.
Go online or call your current company 401(k) retirement plan provider. Find out if you have a self-directed brokerage account (SDBA) option available. This “brokerage window” option will allow you to invest in mutual funds, exchange-traded funds (ETFs) and individual stocks and bonds.
Around45 percent of employers offer self-directed brokerage account options. The surprising number is that only 3 to 4 percent of retirement plan participants with access to SDBAs actually use this self-directed option.
The main benefit of any self-directed company 401(k) account is that you will have many more investment options available to you. These additional mutual funds and ETF’s can be a welcome alternative to the high-cost and poor-performing main menu company 401(k) retirement plan mutual funds that you likely suffer through now.
Many of the target date mutual funds that I monitor for my individual 401(k) investment advice clients have lagged the investment performance of lower-cost index mutual fund options.
Take the time now to find out if you have access to any better-performing and lower-cost investment alternatives in your company 401(k) self-directed brokerage account.
For some individual company 401(k) retirement plan participants, the myriad of options available to them in a self-directed brokerage account is overwhelming. If so, a knowledgeable and experienced independent, third-party, fiduciary level investment advisor may ease your concerns.
It is also very important to understand the investment management risks and costs of a self-directed company 401(k) account. There are always additional fees and expenses to consider.
Some 401(k) plans charge an annual maintenance fee for using the brokerage window. Most brokerage window accounts charge the same fixed transaction costs associated with trades. Find out about these additional costs when you research or talk to your company 401(k) retirement plan provider.
In most cases, you will find a drop in annual mutual fund expenses when you invest outside your core company 401(k) mutual fund menu. This is especially the case when you can find ETF’s that suit your stock and bond market investment objectives and risk tolerance.
In the cases of many of my individual company 401(k) investment advice clients who utilize their SDBA accounts, the decrease in annual mutual fund fees more than makes up for the annual investment advisory fees.
Ric Lager
Lager & Company, Inc.
