My 401k plan

[LuckyTaxi]

Well, next month I'll be eligible to put money into my 401k plan.
I logged in last night to see what's available and to my surprise we have a total of 8 funds available. Six are mainly stocks and two are Bond/Money Market. Wow is all I have to say. I looked at some of the fees and performance associated with them and they are horrible. Granted I know the market is down, but the notion of diversification isn't there!

I have a Roth IRA with TRowe Price, I put in $100 each month into two different funds. I will continue but to do so, the reason I did this was because the funds at my previous company was also bad so I wanted to diversify. However, the funds available for this plan are worst off. The only reasons I want to to contribute are for the match and the tax benefit.
Ok, I know a majority of you will say "Put money in stupid!"

 

[SpunkyJones]

Originally posted by: LuckyTaxi
"Put money in stupid!"

 

[LuckyTaxi]

Originally posted by: SpunkyJones

Originally posted by: LuckyTaxi
"Put money in stupid!"

i know i know....im looking at the funds and maybe 2 or worth putting money into. The others are just bad, the avg for the past 5-10 only get me like a 3% return. I know I shouldn't go by historical data but I've seen better funds from my previous plan and what TRowe offers.

 

[JTsyo]

If you company is matching then already you're getting 100% return. Just put in the min for max matching and let it ride. If you got at least 20 years left, I would imagine the stock market will grow your funds.

 

[Vette73]

If its that bad then go with the one with the lowwest fees up to the company match.

 

[dullard]

Unless you work at a Fortune 500 company (where their size is so large that companies waive fees to get access), then you'll probably face this problem. 401Ks, Simple IRAs, and similar retirement plans give very limited choice into funds with massive purchasing fees, massive yearly fees, and possibly massive selling fees.

That said, it is still stupid to ignore the MATCHING portion of their plan. Even if you are in a very high fee plan (5% purchasing fee, 5% selling fee, and 1%/year extra overhead fee) you'll have to pay those fees for 59 years before you lose on that company match. I highly doubt that will be a problem (since you can always roll it over to a lower fee company when you leave your job).

But this is why advisors usually say to avoid putting more than you need to into your 401K to maximize your match. Any extra funds should go into a Roth IRA and/or a normal IRA, then a standard (not tax advantaged) account. Only if you are really overloaded with money will you then consider going back and maxxing out the 401K.

As for limited selection with poor returns, just use this as your bond/cash portion of your portfolio. Everyone needs some bonds/cash to minimize risk without harming returns (assuming you rebalance regularly and that you keep this portion to 10%-20% of your portfolio). Then use your Roth IRA for the risky stocks.

 

[Capt Caveman]

Originally posted by: dullard
Unless you work at a Fortune 500 company (where their size is so large that companies waive fees to get access), then you'll probably face this problem. 401Ks, Simple IRAs, and similar retirement plans give very limited choice into funds with massive purchasing fees, massive yearly fees, and possibly massive selling fees.

That said, it is still stupid to ignore the MATCHING portion of their plan. Even if you are in a very high fee plan (5% purchasing fee, 5% selling fee, and 1%/year extra overhead fee) you'll have to pay those fees for 59 years before you lose on that company match. I highly doubt that will be a problem (since you can always roll it over to a lower fee company when you leave your job).

But this is why advisors usually say to avoid putting more than you need to into your 401K to maximize your match. Any extra funds should go into a Roth IRA and/or a normal IRA, then a standard (not tax advantaged) account. Only if you are really overloaded with money will you then consider going back and maxxing out the 401K.

As for limited selection with poor returns, just use this as your bond/cash portion of your portfolio. Everyone needs some bonds/cash to minimize risk without harming returns (assuming you rebalance regularly and that you keep this portion to 10%-20% of your portfolio). Then use your Roth IRA for the risky stocks.

I've worked for start-ups to medium size companies. Never had to pay any purchase, yearly or selling fees for any of my retirement plans.

 

[Special K]

Can you post the funds and their ticker symbols, along with their expense ratios? At some point, it might make sense to forego 401k contributions and instead put the money in your own self-directed taxable account.

I would also recommend posting your situation over at the Boglehead's Forum.

 

[mugs]

Originally posted by: LuckyTaxi

Originally posted by: SpunkyJones

Originally posted by: LuckyTaxi
"Put money in stupid!"

i know i know....im looking at the funds and maybe 2 or worth putting money into. The others are just bad, the avg for the past 5-10 only get me like a 3% return. I know I shouldn't go by historical data but I've seen better funds from my previous plan and what TRowe offers.

That's better than an index fund over the same period...

Do you get a match? If so, put money in the 401k. Instant 50-100% return.

 

[HardcoreRobot]

get your match, when you leave roll it out and self-invest.
even if the funds and fees suck, gonna be hard to beat a match

 

[dullard]

Originally posted by: Capt Caveman
I've worked for start-ups to medium size companies. Never had to pay any purchase, yearly or selling fees for any of my retirement plans.

It was probably built into the cost of the funds. For example, if you add up the total assets of a fund and divide by the number of shares, you'll get a value of lets say $10/share. But then they charge you $14/share to buy it. You just never see the fees. But if you read their disclosures, the fees are listed.

 

[Special K]

Originally posted by: Capt Caveman

Originally posted by: dullard
Unless you work at a Fortune 500 company (where their size is so large that companies waive fees to get access), then you'll probably face this problem. 401Ks, Simple IRAs, and similar retirement plans give very limited choice into funds with massive purchasing fees, massive yearly fees, and possibly massive selling fees.

That said, it is still stupid to ignore the MATCHING portion of their plan. Even if you are in a very high fee plan (5% purchasing fee, 5% selling fee, and 1%/year extra overhead fee) you'll have to pay those fees for 59 years before you lose on that company match. I highly doubt that will be a problem (since you can always roll it over to a lower fee company when you leave your job).

But this is why advisors usually say to avoid putting more than you need to into your 401K to maximize your match. Any extra funds should go into a Roth IRA and/or a normal IRA, then a standard (not tax advantaged) account. Only if you are really overloaded with money will you then consider going back and maxxing out the 401K.

As for limited selection with poor returns, just use this as your bond/cash portion of your portfolio. Everyone needs some bonds/cash to minimize risk without harming returns (assuming you rebalance regularly and that you keep this portion to 10%-20% of your portfolio). Then use your Roth IRA for the risky stocks.

I've worked for start-ups to medium size companies. Never had to pay any purchase, yearly or selling fees for any of my retirement plans.

My experience has been the same as Capt Caveman's. My current employer only has ~90 employees, yet the 401k plan here is far better than the one offered at previous Fortune 500 company I worked for. Both plans are through Fidelity, but the one offered by my current employer has many more fund choices, and has several dirt-cheap index funds, which I like.

 

[Special K]

Originally posted by: dullard

Originally posted by: Capt Caveman
I've worked for start-ups to medium size companies. Never had to pay any purchase, yearly or selling fees for any of my retirement plans.

It was probably built into the cost of the funds. For example, if you add up the total assets of a fund and divide by the number of shares, you'll get a value of lets say $10/share. But then they charge you $14/share to buy it. You just never see the fees. But if you read their disclosures, the fees are listed.

It would be easy enough to verify that by looking at the 401k's transaction history and comparing that to the NAV of the funds on the date of purchase.

 

[dullard]

Originally posted by: Special K
It would be easy enough to verify that by looking at the 401k's transaction history and comparing that to the NAV of the funds on the date of purchase.

Here is an example from one of my accounts. And that isn't an exception, that is the truth for most people with most plans.

 

[Capt Caveman]

Originally posted by: Special K

Originally posted by: dullard

Originally posted by: Capt Caveman
I've worked for start-ups to medium size companies. Never had to pay any purchase, yearly or selling fees for any of my retirement plans.

It was probably built into the cost of the funds. For example, if you add up the total assets of a fund and divide by the number of shares, you'll get a value of lets say $10/share. But then they charge you $14/share to buy it. You just never see the fees. But if you read their disclosures, the fees are listed.

It would be easy enough to verify that by looking at the 401k's transaction history and comparing that to the NAV of the funds on the date of purchase.

Yep and that's not the case.

 

[Special K]

Originally posted by: dullard

Originally posted by: Special K
It would be easy enough to verify that by looking at the 401k's transaction history and comparing that to the NAV of the funds on the date of purchase.

Here is an example from one of my accounts. And that isn't an exception, that is the truth for most people with most plans.

So when you reinvest dividends, it gives you the actual NAV, but when you make a contribution, it gives you a purchase price of the NAV + fees?

I didn't realize that sort of thing was common. Although as I said in my previous post, it's easy to tell if your plan is charging you purchase fees.

 

[ultimatebob]

Originally posted by: Marlin1975
If its that bad then go with the one with the lowest fees up to the company match.

Yeah.... what is the company match, anyway? It's hard to give solid advice without knowing that.

 

[dullard]

Originally posted by: Special K
So when you reinvest dividends, it gives you the actual NAV, but when you make a contribution, it gives you a purchase price of the NAV + fees?

Yes.

I didn't realize that sort of thing was common. Although as I said in my previous post, it's easy to tell if your plan is charging you purchase fees.

It is easy to tell, of course. But, not everyone takes the time to read those things. Think of it this way. The person who you deal with at your 401k company has to make his/her living somehow. It is either through purchase fees or through yearly fees. That is the way that stocks have been traded for decades/centuries. Generally as the amount of money invested at your employer increases, the percentage of the fee drops since it takes less per employee at your company to pay the salaries at Fidelity, TIAA CREF, American Funds, etc.

 

[Special K]

Originally posted by: dullard

Originally posted by: Special K
So when you reinvest dividends, it gives you the actual NAV, but when you make a contribution, it gives you a purchase price of the NAV + fees?

Yes.

I didn't realize that sort of thing was common. Although as I said in my previous post, it's easy to tell if your plan is charging you purchase fees.

It is easy to tell, of course. But, not everyone takes the time to read those things. Think of it this way. The person who you deal with at your 401k company has to make his/her living somehow. It is either through purchase fees or through yearly fees. That is the way that stocks have been traded for decades/centuries. Generally as the amount of money invested at your employer increases, the percentage of the fee drops since it takes less per employee at your company to pay the salaries at Fidelity, TIAA CREF, American Funds, etc.

At my previous Fortune 500 employer and at my current employer of < 100 employees, we use Fidelity and are charged a quarterly account fee, but the Fortune 500 company's plan charged $25/qtr in fees, while the small company's plan only charges something like $8.50/qtr.

I guess the small company is either very good at negotiating, or they are eating the cost of the higher fees for us.

Another benefit to being at a smaller company, at least in my experience, is that the committee that decides the 401k fund choices is more receptive to suggestions for new fund choices, switching to a new provider, etc. Good luck getting any of those things changed at a huge company.

 

[dullard]

Originally posted by: Special K
Another benefit to being at a smaller company, at least in my experience, is that the committee that decides the 401k fund choices is more receptive to suggestions for new fund choices, switching to a new provider, etc. Good luck getting any of those things changed at a huge company.

Either way, you are ignoring my bigger point. Both of your 401Ks that you had were limited in selections (even if one was a bit more flexible). Fee or no fee, you don't get to invest in everything you want. Put in enough money into the 401K to get your full match, then go elsewhere for the rest of your investments (retirement or just regular investments).

 

[Special K]

Originally posted by: dullard

Originally posted by: Special K
Another benefit to being at a smaller company, at least in my experience, is that the committee that decides the 401k fund choices is more receptive to suggestions for new fund choices, switching to a new provider, etc. Good luck getting any of those things changed at a huge company.

Either way, you are ignoring my bigger point. Both of your 401Ks that you had were limited in selections (even if one was a bit more flexible). Fee or no fee, you don't get to invest in everything you want. Put in enough money into the 401K to get your full match, then go elsewhere for the rest of your investments (retirement or just regular investments).

It depends on your 401k plan choices though. In my case, the index funds I would have picked on my own also happened to be available in my 401k, so it was a win-win for me.

Second, you would have to have an extraordinarily crappy plan to make taxable investing a better deal than a 401k, especially with regard to tax-inefficient investments such as bonds.

A Roth IRA is an option for many people, but is limited to $5k/year. I believe that limit will be scaled with inflation starting in 2010, but the 401k limit is 3x higher and has always gone up with inflation.

 

[Elbryn]

i think dullard is just repeating the standard
1) contribute to 401k to max employee match- free money is free money.
2) contribute to a roth ira to the max next
3) max your 401k unless its so terrible that it is not worth it
4) taxable accounts

if you invest with a taxable account that's earmarked for retirement, asset allocation placement comes into play. stick all of your bonds into your 401k side or other tax deferred vehicle. Choose tax efficient funds for your taxable accounts. no more paying extra taxes.

 

[zzuupp]

I third with Elbryn & dullard advice

 

[IHateMyJob2004]

Originally posted by: LuckyTaxi

Originally posted by: SpunkyJones

Originally posted by: LuckyTaxi
"Put money in stupid!"

i know i know....im looking at the funds and maybe 2 or worth putting money into. The others are just bad, the avg for the past 5-10 only get me like a 3% return. I know I shouldn't go by historical data but I've seen better funds from my previous plan and what TRowe offers.

I love how people blindly think they must use their 401K.

I do a bit of my 401K, company match but only because I work for a better company (GD).

Most people would be best served by skipping 401Ks altogether and just dumping their money into BRK-A or BRK-B. Why not have one of the best money managers of the last century manage your money for you?

 

[LuckyTaxi]

Most of my funds are from the Blackrock Family of Funds.
www.blackrock.com