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The link below is to a story summarizing research about the mutual fund industry.
The results are perhaps not surprising: most mutual funds, despite professional/active management, under perform the market as a whole. In addition, the fees charged are high relative to other low cost index funds. There is also a reference to the published letter that Warren Buffet gave to his children regarding his investment advice: invest in low-cost index funds which mirror the market.
So here is my question: I work for a large company and I participate in the 401(k) program. The current match is 3.0%. The 401(K) options are all actively managed mutual funds. There are no low cost index funds or ETF's which I find really frustrating.
Am I wasting my money by contributing 10.0% every pay period? Should I participate only up to the 3% company match and put the rest into an IRA comprised of low cost index funds?
You omitted what charges you currently incurring.
My assumption is that your large company has a large 401k fund and you are charged fees that are less than retail investors. Thus you probably cannot buy the same funds at a lower price.
You will have to lobby HR for some low costs indexes.
Seems that the company could do better on investment choices, so based on what you said I would invest up to the match and put the rest in my own retirement account. Probably a ROTH IRA.
I only put in what my company matches and no more which was lowered to 5% recently. They also let us buy company stock though at a 15% discount, up to 10% of our paycheck. I've been doing this since October 2011... so I do invest 15% of my check. The company stock just goes into a regular fidelity brokerage account.
Unless the expenses are that much higher or you are a savvy investor who wants more investing options I wouldn't worry about it.
Our 401K set-up is similar but I still contribute max ($18K plus make-up) so my tax burden is less. I assign quite a bit to a part of the plan is basically just cash on hand.
You omitted what charges you currently incurring. My assumption is that your large company has a large 401k fund and you are charged fees that are less than retail investors. Thus you probably cannot buy the same funds at a lower price.
You will have to lobby HR for some low costs indexes.
Seems that the company could do better on investment choices, so based on what you said I would invest up to the match and put the rest in my own retirement account. Probably a ROTH IRA.
Good point and I admit I am not sure how much the fees we are charged are. I just assumed it was similar to what a retail investor pays. I need to look into that. Given how large the firm is I would guess we get a discount of some sort.
Good point and I admit I am not sure how much the fees we are charged are. I just assumed it was similar to what a retail investor pays. I need to look into that. Given how large the firm is I would guess we get a discount of some sort.
My employer has vanguard as their custodian and we can invest in vanguard Wellington admiral which is a 50k minimum fund to retail investors. Very very low expense ratio for this fund.
As much as many people think 401k's are great (I'm not saying they are all bad), the choices in many of these 401k's get you stuck into high expense funds. I would just invest the 3% for the match and do a Roth IRA and then invest in other low cost funds (Vanguard is always good) outside. You also have more flexibility with your money/funds if they aren't stuck in a 401K or Roth IRA where you would pay penalties to pull money out.
As much as many people think 401k's are great (I'm not saying they are all bad), the choices in many of these 401k's get you stuck into high expense funds. I would just invest the 3% for the match and do a Roth IRA and then invest in other low cost funds (Vanguard is always good) outside. You also have more flexibility with your money/funds if they aren't stuck in a 401K or Roth IRA where you would pay penalties to pull money out.
Well with a Roth you can always withdrawal your contributions at any time without penalty or tax issues so your knock against them really is lacking merit
Well with a Roth you can always withdrawal your contributions at any time without penalty or tax issues so your knock against them really is lacking merit
You pay a penalty if you withdraw money from a Roth IRA unless you use it to buy a house (up to $10,000), for a bad injury or disability, or you die and it is transferred to beneficiaries. You can't just withdraw money from your Roth IRA before 59 1/2 as you wish.
You pay a penalty if you withdraw money from a Roth IRA unless you use it to buy a house (up to $10,000), for a bad injury or disability, or you die and it is transferred to beneficiaries. You can't just withdraw money from your Roth IRA before 59 1/2 as you wish.
No, you're wrong. CONTRIBUTIONS to a Roth IRA can be withdrawn at any time for any reason without tax or penalty, as previously stated. Earnings are another story.
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