company or self-directed 401k

hello, have a question on what to consider if allowing company to manage

401k funds or pick a self-administered brokerage arrangement and manage myself the 401k funds

background: have worked for company over 20 years and their 401k management (the internal vs. outsourced management) has gone through multiple hands and multiple companies. in all this time, the funds have grown between 5-12% every year, amounting to about 500k

now company has announced a major change in how they match funds, how much can be invested into each of the categories and also the option to choose a self-directed brokerage account where you would pay for each trade but it's all under your own control

the difference of course is that the company managed (or the outsourced management for the company) has access to institutional funds where an individual would not have access but they also charge very high fees from the funds, often 1.0 to 1.5 percent and I think I may be able to pick mutual funds that would charge only 0.5 percent or less and maintain same diversity

some examples of the funds are various SSgA funds, Boston Company domestic and International funds and pools of these (blends of various funds)

of course I can just park the 500k into a money market type also but I have to make a pick to allow them to manage it for me (and pay 1.5 percent or more) or pay per transaction but pay much less if I self-manage

Reply to
Amy
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Personally I have always like the self managed route. I don't know which brokerage is available to you. But in general you get a much broader selection of funds, and of course you can pick funds with low management fees.

Reply to
PeterL

Given what you described, I would lean toward going the self-managed route and choosing a number of ETFs or very low cost index funds. The difference between .20% and 1.5% is a huge difference over time. With $500K on the line, it's worth learning how to properly diversify the account to maximize your returns. JOE

Reply to
joetaxpayer

It depends on more than just that. What she probably has is a "mutual fund window" through her 401k which lets her invest - via a specific brokerage - in a specific subset of funds, usually limited to a few families. She may well not have access to ETFs or to the lowest-fee fund families through that "window".

Truth is, Amy needs to do a bit more research and post the specifics here for any response to be especially good beyond basics or platitudes.

Reply to
BreadWithSpam

You may be right. The ones I am familiar with allow you to move cash to the brokerage side of the 401(k) and then choose any publicly traded stock you wish, as well as pick from a huge number of no-load funds. I hope to see her post back with the missing details.

Reply to
joetaxpayer

the self-managed brokerage option has access to all funds and stocks and etf's that ameriprise is selling, basically the whole basket of "stuff"

the confusion came partially from the hesitation that I'd have to pay for each trade, separately and wasn't sure someone else had been in this spot, also, the 500k is a bit intimidating in not taking too many chances yet making a reasonable annual return (to me anything from 5-12%)

Reply to
Amy
[as a carve-out from her 401k]

That's a great package. At a previous employer of mine, the mutual-fund-window (similar carve-out) basically stank.

Given Ameritrade's standard pricing (make sure you have the standard pricing!) of $10/trade for stocks and ETFs and, I expect (I couldn't get to it on their page without having an account, apparently) a decent selection of no-transaction-fee funds, you are very likely best off moving as much as you can from your 401k into this account at Ameritrade. Make certain what the fees really are.

The lowest-cost index funds are almost certainly not NTF (no-transaction-fee) funds, and they charge $50/trade for no-load-funds which aren't in their NTF program, so I'd probably avoid that and buy index ETFs there for $10/trade.

Reply to
BreadWithSpam

Ok, so what does the company directed stuff look like? Personally, I'd run the other way from Ameriprise, but maybe others have a different opinion.

Elizabeth Richardson

Reply to
Elizabeth Richardson

I am in this spot. And I know plenty of people go the self managed route.

I would think that there'd be plenty of no transaction fee mutual funds to buy from. Stocks and ETF's you'd have to pay a commission (very small IIRC). 5% is probably your floor as short term treasuries are at about 4.8%. A diversified portfolio of stocks and bonds will very likely get you 10% long term.

Reply to
PeterL

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