Dan Solin's Newsletter, April 6, 2017
Frank (not his real name) sent me his 401(k) investment options and asked me to help him select the ones that were most suitable for him. This is a request I receive frequently from confused employees.
For many participants, selecting investment options in their plan from a dizzying array of choices is like being caught in a maze. Often, there’s no reliable source of advice, so employees rely on co-workers or the HR Department, who are equally clueless.
Here’s a fact few appreciate. The primary beneficiaries of 401(k) plans are advisors, record keepers and (most of all) mutual fund companies. The well-being of hapless employees is relegated to last place.
The investment options in most plans are expensive, actively managed funds, which are likely to underperform low management fee index funds. Why aren’t there more index fund options? Because index funds won’t pay “revenue sharing payments” demanded by plan service providers as the price of entry for inclusion as an investment option in the plan. Typically, mutual funds that agree to make these payments charge higher fees. High fees reduce expected returns, so they’re bad for plan participants.
I used to have to comb through the investment options manually and select the ones that were the least objectionable. Now that process can be done automatically.
You can open a free account with FeeX. You then link your 401(k) account manually or
automatically to your FeeX account. FeeX has no ability to access your funds. The company then scans the funds in your account and recommends lower cost funds, if they are available.
FeeX claims the average savings per user is $50,000 over the life of the account.
FeeX is a no-risk guide to help you out of the maze. Try it.
Question from William:
What’s the biggest myth in investing?
That some “guru” has the expertise to reliably and consistently tell you when to get in and out of the market, select stocks that will outperform the index to which they belong or pick a “hot” mutual fund manager.
Each week I’ll recommend a resource that provides sound investing advice.
This week’s pick is: http://jasonzweig.com
Why I like it
Jason Zweig in the personal finance columnist for The Wall Street Journal. The advice on his website is a reliable source of excellent investment advice. As he notes, “When it comes to investing, there’s a world of difference between good advice and advice that sounds good.” Jason provides “good advice.”