I used to take my old employers word for how good my 401(k) plan was. For the first 10 years into my plan I never touched it, then as I educated my self I started to manipulate my 401(k) with my best intentions of increasing my rate of return. Over 18 years into my old 401(k) the best rate of return I was able to create was a whopping 7%. Not very impressive, but as I explored and researched I pretty much met the average rate of return.

Is your 401(k) as good as your management says it is?
Here are a few elements you should explore inside your 401(k). I have provided some important resources that make up a good 401(k).

1. Index Investment Options

Yes, of course, you will see some index funds in your plans, make sure they offer a good number of index fund options over an entire asset class spectrum. Make sure these fund options cover a huge variety of asset classes such as domestic, international, fixed income, and equities.

2. Target Date Funds (Personally not a fan of this.)

Financial Institutions have created a one-stop shop for employees to make selections easy. They have created target date funds. In other words, you figure out when you are planning on retiring and then you select that target date fund. I was skeptical about these funds when they first came out, I took the time to look into them. Although these are the easiest to pick from, personally I would not recommend doing these as I explored them and found that they really don’t optimize your 401(k) as you can choose other strategies to do this more effectively. Trust me if you talk with an advisor outside your employer they would probably steer you away from these types of funds.
But in case you are interested in these types of funds, you may want to know that the target date funds are the lowest cost. (Hence why I personally say they are not the best. You get what you pay for.) If you want to know how they do this, these funds offer lower cost by including index investments within their investments.

3. Advice Counseling

Most 401(k)’s offer this option and will talk to you over the phone to answer any questions you may have, but I noticed the information and the help they provide is very general but its free and available to you if you need it.
If you decide to invest outside you would receive attentive meetings with your advisor and because you pay a premium their time and advise is valuable.

4. Reports

Make sure you receive quarterly statements, monitor these reports, make sure you're quarterly earnings are on track with your goals, if not make the proper adjustments necessary.

5. Resources Available to you

When you set up an account most institutions make calculators and tools available to you. I recommend to use them! They are provided most of the time on their websites and in your accounts.

6. Understand your 401(k) plan

If you decide to set up a plan with your employer understand this is a group plan, ask how much your employer matches and that you know and recognize your employers match. I recommend investing only your employers match and investing anything extra you want outside your employers 401(k). They cover so much in your companies 401(k) meetings so make sure you ask all your questions in person because after you set up your 401(k) your only option will be to make a phone call to a representative in another state or city.
If you follow Dave Ramsey’s Financial Peace University, Dave Ramsey talks about employers 401(k) plans, he also suggests that you should only invest your companies match and to invest into a different type of account outside your employers 401(k)’s. When you consider investing outside your companies 401(k)’s you will be exposed to a huge amount of products and services that are not offered to you in your companies plan. Remember the average rate of a 401(k) is about 7-8 percent, but you will find outside your employers plans there are products out there that are outperforming employers 401(k) plans, you just have to find a good financial advisor to show them to you. Another rule of thumb if I can help add any value to you is by experience and through some exploration and research, I do not recommend any of those 1 pick target date funds. They are not very effective and if you think you will be found by just picking a target date you may find your self 50 years later in life disappointed.

I also recommend that you consider investing outside your employers plans. I hear lots of people say “I’ll be fine, I have a 401(k) with my employer, I don’t need any other investment vehicles.” Most people move from job to job forgetting about their old 401(k)’s after you leave an employer you are still paying fees for them to manage those accounts for you, so you could be losing a significant amount of your hard earned money so you have to do something about those old 401(k)’s lying around, don’t just leave them there I recommend you get with a financial advisor to help you and guide you on how you can leverage those old accounts. Lots of financial podcasts and radio talk shows will suggest you roll them over. It is a wise decision.

If you live in the greater Austin area I help individuals and families secure their financial futures. I can help add value and optimize your retirement toward your goals and dreams. Remember most people don’t plan to fail, they fail to plan.

Rene Gonzales
Senior Representative
c. 512-568-7203
e. [email protected]
www.primerica.com/ReneGonzales
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