Investing in your 401k has been one of the best ways to set yourself up for the future. The number of 401k millionaires grew from 21,000 in 2009 to 233,000 in 2019. One of the main reasons is because it’s extremely easy to automate investing money into this account because your employer deducts the money directly from your paycheck.
Unlike a Roth IRA, the investment options within a 401k are chosen by your employer and are usually limited. On the surface, this doesn’t seem like a big deal. But when you take into account how many expensive actively managed funds are offered within a 401k, it’s obvious that there’s a real issue with this retirement account.
In this video, we’ll go over the data I gathered from other 401k participants so you can compare your investment options to theirs. I’ll also show you why actively managed funds are the worst investment you can hold within your 401k.
Why The 3 Fund Portfolio Is King:
The Problem With A Target Date Fund:
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Disclaimer: This video is for educational purposes only. Please take all of my suggestions/recommendations and do your own research before making any decisions with your money. Contact a professional before trying anything that I talk about. I know you’re smart and you’ll use that big brain of yours :)…(read more)
LEARN MORE ABOUT: 401k Plans
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HOW TO INVEST IN SILVER: Silver IRA Investing
If it wasn't for Vanguard a lot of fees would be more expensive across the board.
An employer in the past only offered active mutual funds from the Capital Group. All funds had a 4.75% expense ratio. Even the money market fund guaranteed to lose you money. Only cost effective option was company stock that was already how the company matched your investment. Luckily the company was bought out and stock price was increased 8x. Found another job and left.
I have not invested in my 401k yet, but I never knew about this fee until I watched your video. After watching, I immediately reviewed the fact sheet and noticed that the management fee is 0.04%. Although low, still good to know how much you're being charged. A lot of people don't know about this. Thank you!
Jarrad, I’m new to finance, your video prompted me to research my company 401k options, it wasn’t pretty. If you were already heavily invested into a target date fund in a 401k into which your employer automatically enrolled you, when might be a good time to take that full balance and put it all into something like FXAIX? (Assuming said 401k is now down 15-20% due to current market volatility)
Nobody can become financially successful over night. They put in background work but we tend to see the finished part. Fear is a dangerous component, hindering us from taking bold steps we need in other to reach our goals.
My opinion: you should stay away from employer 401k. Their match does not worth the hassle. Just open some IRA on a side or and a taxable brokerage account. Keep your employment and retirement separate.
Really appreciate your videos. Some of the best information I’ve learned. Thank you
I just stumbled across your channel. This is fantastic!! I have long held the belief that a cheap passive managed fund is better simply because a penny saved is a penny earned. Sounds like I might have been right.
I'm not a 401k believer, but it's free money 100% matching from my employer + 6%, so I can't turn it down. The key is to DIVERSIFY your investment, don't rely on 401k alone.
We get index funds options. The ones I picked have 0.01% expense ratio 🙂
I cant complain about 401k , i used it to buy my House . So it worked for me.
I’m interested in what what new employer Home Depot offers. I Googled and found out there’s a lawsuit and some issues with the 401K. I have investigative homework to do before I start investing.
VOO/SCHA/VEA
Mutual Funds in 401k's are archaic. Go with ETFs in Roth IRA
I have used Blooom for my 401ks for a long time. For the amount they charge, I consider their selections to be of great value. Their selections helped me avoid this trap.
The FLAW is, it was a rug pool. 401k IS A SCAM. That is the problem, In the 1990's they took all the profit sharing and rolled it into 401k programs. Most companies matched 100%, companies like Home Depot were matching 125% up to the annual max…………… NOW, they match like 4%. One giant fraud to make blue collar America think they were part of the Stock Market.
Actually 0.07% is too much for my taste! All my funds are under 0.04%!
How about the 0.51% asset charge that is levied without you even seeing it on the statement? It's got nothing to do with expense ratios of mutual funds
I've got the BEST of the Worst 401k stories! It was the early 2000's during a mortgage industry slowdown and my wife had been laid off but quickly found a new job at a very small title company with maybe 4 employees that was primarily owned by a bank. The 401k plan was administered by the bank's "investment advisor" and the only wealth he was concerned with building was his own. Not only were the annual fees north of 2% there were super high front and back end sales loads too. This was a few years before they criminalized bad 401k plan choices and after looking everything over I really pissed him off by encouraging my wife to go 100% into "cash". As a workplace bonus the "boss" was completely nuts as well and after 18 months (far too long in my opinion) my wife was out of there and none too soon. The market went nowhere so it was a win all the way around and it was a happy day when I was able to roll it all over into her IRA account.
You googled the answer to say about 72k and then say 75k….
But I do the 401k investing for reducing my taxable income since I don't own real estate yet. I have no more student loan interest debt that I can write off and I don't sell stocks at a loss…. Other than hsa and 401k, not sure weekday my other opinion is
Fidelity actually has a really low fee. I think lowest in the industry.
Interesting. Employers I’ve worked for usually give you the option of investing yourself or picking an index fund. I think the index fund is a default option but you can also change that if you want.
I do lg, mid, sm, inter. Expense all under .04%
forget 401k's. I don't even expect to live past 60 lol. Live fast die young.
One way to have more control over your 401K is to form a union and bargain for a 401K committee that reviews and chooses investment options. My workplace is unionized and we have a committee that includes this sort of committee. Every year our committee reviews the available options and removes or adds options based on their performance, fees, and investment objectives etc. Best thing you can do to gain more control of your retirement and your working conditions generally is to form a union.
Wow glad this video came across my page my employer defaulted me to a target date fund with .27% charge and it underperformed 3/4 index funds options available with as little as .01%, still want to learn more before doing changes but now I know it’s urgent! Thank you
When I was a teacher, we were offered only annuities. And about 1.5% expense ratio funds at that! Absolutely ridiculous! Especially because we have pensions and have little need for an annuity. After I, and a fellow employee became Bogleheads we asked for an index fund provider. A short-time later, we had fidelity with 189 funds and many are passive. Big move that completely changed my financial future. Quick question, why didn't you just roll over your 401k?
Saw you on Average Money and subscribed and ALSO went to watch videos. I used to be a music teacher but have moved to band instrument repair, so in a few months I'll be signing up for my first 401K of my life and now I'll know what to look out for in the options. Thanks!
I hate the options in my 401k. The S&P 500 equivalent they offer has 1.5% in fees. It's still worth maxing out though because it's Roth with match. Hate how the law won't let me roll it over to something I can manage myself unless I quit or are over 55. The 1.5% will cost me less than tax on a regular brokerage account though, so it's not horrible, but it could certainly be improved.
The reason employers do this is because the more money they can take from you, even if they don't keep it, means more years that you are stuck working.
My 401k is a mix of passive, and active, funds, and index ETFs. It costs a flat rate of $1 per month. I also have 5% employer match…sounds like I'm not in that 90%
Edit: to do the math for you, that's $360 over 30 years..
The 401k is a f* scam. The IRA should just be expanded and the 401k should just die.