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by anandabits 4643 days ago
Employer provided 401k plans are great when you receive matching contributions, but otherwise not a very good. They generally have extremely limited investment options. It will be hard to offer general advice applicable to all 401k participants since they will each have a small selection of investment vehicles.

The best advice is to make sure you contribute enough to receive the matching contribution, and then immediately roll the money out into an IRA as soon as you leave the employer. This will allow you access to a much wider range of investment vehicles.
2 comments
wj 4643 days ago
More and more firms are starting to offer self directed brokerage accounts that you can use within your 401(k) plan.

Also in a 401(k) plan you get to purchase mutual funds at NAV which you cannot do through an IRA.

I don't believe there is a one size fits all ("best advice") solution to personal finances. Though I do agree with making sure you max the matching.

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saryant 4643 days ago
> Also in a 401(k) plan you get to purchase mutual funds at NAV which you cannot do through an IRA.

I don't believe that's correct. My understanding is that all mutual funds (excl. closed-end funds) must trade at NAV regardless of the type of account they're held in.

http://www.sec.gov/answers/nav.htm

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wj 4643 days ago
From your link:

"That is, the price that investors pay to purchase mutual fund and most UIT shares is the approximate per share NAV, plus any fees that the fund imposes at purchase (such as sales loads or purchase fees). The price that investors receive on redemptions is the approximate per share NAV at redemption, minus any fees that the fund deducts at that time (such as deferred sales loads or redemption fees)."

In 401(k) the loads or purchase/redemption fees are usually waived (with the exception of short term redemption fees which are sometimes imposed for not holding funds at least 30-90 days to discourage people trying to "day trade" mutual funds).

Also, I did forget to mention that, in addition to waiving CDSC charges, large plans can usually qualify for cheaper share classes of the funds. For example Admiral or Signal shares at Vanguard rather than the retail Investor shares.

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saryant 4643 days ago
Right, there can be fees imposed on top of the fund's price itself but that doesn't mean the fund isn't trading at NAV.
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wj 4643 days ago
Well, I said "purchase" rather than "trading". And you can't purchase at the NAV price if they're adding fees on top of it.
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AjithAntony 4643 days ago
There are a great many no-load funds. A cost-sensitive investor will naturally buy index funds, and all the major IRA custodians offer at minimum, their in-house index funds fee free.
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bpm11 4643 days ago
anandabits - that's the point of our service! It is specific advice customizable to your specific 401(k) plan. Check out the site to see what I'm talking about.

I've got to agree w/ your last point - it is typically best to move money into an IRA. There are cases however where a larger employer may be able to get lower cost funds than would be available to you in a stand-alone IRA.

What is most important is putting away enough money to maximize any company match you might get.

But you're right, the limited options can be problematic; and that's why we've created Kivalia.

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