It’s easy to forget about overseeing money that you don’t deal with every month, especially when you’re busy with work and family. But that sweet retirement account of yours is working behind the scenes, day in, and day out. The thing is, most people don’t realize that you can make it work a lot harder, so you won’t have to. And when your retirement savings compound, tax deferred, over time, it creates wealth for you to have the future you intended!
HIDDEN COSTS! Most 401(k) investment options are mutual funds or insurance products. Internal fees, called 12b1, and insurance costs are charged DAILY to cover the cost of each fund’s operation. Typically, the more complex the operation, the more money it costs you! For example, International, Small and Midcap mutual funds all have higher expenses than a simple Index Fund.
Wealth Tip: Ask immediately if Exchange Traded Funds (ETF’s) or Index Funds are available, if your 401(k) does not already have these products as an option for you. Competitive, low cost ETF’s and Index products can save you as much as a whopping 50% to 75% of the internal expenses, allowing your money to grow faster.
Here’s an example in real dollars…
Mutual Funds or Insurance products: $500,000 invested at a 1.25% internal cost = $6,250 per year; $6,250 x 10 yrs. = $62,500 WOW!
ETF’s or Index fund products: $500,000 invested at .65% internal cost = $3,250 = per year; $3,250 x 10 yrs. = $32,500 WOW!
That’s a savings of over $30,000 to you…before compounding!
LIMITED CHOICES: You probably know that it’s smart to divide your savings into different types of investments, such as different kinds, or classes, of stocks and bonds. This is called Asset Allocation. Did you know that the Asset Allocation you choose, based on your time frame and risk tolerance, will account for 95% of your investment results over time? There are some 26 asset classes, or investment categories, available. While you may not need to use them all, a good balance of 10-15 categories will help maximize your returns and reduce your volatility.
Wealth Tip: Make sure your retirement account offers many choices of asset classes. Consider dividing your 401(k) investments into asset classes such as Large Stock Value, Small Cap Growth, High Grade Bond, Short Term Bond, etc. Many of the classes are negatively correlated, meaning they move in opposite directions. It’s not by chance that if one asset class is down, another may be making you money!
WHO’S IN CHARGE? Is your employer ensuring that the investment firm handling your money is 
providing an opportunity to visit with you, one on one, at least twice a year? Your investments require attention! Rebalancing, making changes when your retirement account is losing more than you’re comfortable with, and directing contributions to different asset classes as your income increases are all smart discussions which require strategy.
Wealth Tip: Making changes as things happen will rarely get you to where you want to go on time, and with the resources you’ll need! The bulk of your life savings may be in your 401(k). Review it; watch it; seek expert advice about it; be proactive. It can mean the difference in your quality of life in the future.
ALERT: IF YOU ARE NO LONGER EMPLOYED WITH THE COMPANY THAT HAS YOUR 401(K) INVESTMENTS: TAKE CONTROL! You may even be paying an extra layer of fees if you left your employer.
Wealth Tip: Did you know that you can move your retirement account, transfer it, or roll it over into a beneficial IRA to capture numerous tax advantages regarding your distributions? Name your spouse, your children, your grandchildren as beneficiaries on your IRA, and then they can pay the taxes over their lifetime. Save thousands!
If you have any questions at all about these simple, yet potentially life changing strategies, feel free to call me at 512-330-9161. There’s absolutely no obligation or charge; I’d love to help you have the future you intended. It’s what I do best.
Sincerely,
Ron Smith