Please forward this error screen to 69. These plans offer investors many benefits in saving for retirement, but should i invest outside of my 401k also have their drawbacks.
But they are not all cut from the same cloth. Christine Benz, our director of personal finance. In fact, it’s maybe the only choice through your employer for a lot of investors. Your contributions go in without you having to lift a finger except to initially get the thing going. So it does keep you investing in good markets and in bad, and that I think tends to serve as a safeguard against investors’ own worst behavioral tendencies.
The other thing is that they really make it easy for people who are a little bit lazy about their investments. So you can add on nice features that can get your plan back into whack. So you can put in place auto-escalation in a lot of plans, so your contributions bump up if you get a raise in salary. You can also auto-rebalance if you want to have your portfolio periodically scaled back to your target allocation. So regardless of the quality of your plan, once you’ve done a little bit of homework on what the investment options are like, you do want to contribute at least enough to earn that match if your company is indeed offering one. That’s something that you will not get, obviously, if you invest outside of the confines of a plan. One thing that a plan can bring to investors is because it may be a bigger company you might have access to funds you wouldn’t necessarily have access to otherwise, or you might get a better deal on some of those funds perhaps?
So there are institutional share classes of mutual funds. They often feature very, very low costs alongside the share classes that are available to retail investors buying the funds on their own. If they are in a larger plan where the management company has swung a nice deal on behalf of participants, your total cost load for owning that plan can be very, very low. You won’t find outside of them. So stable-value funds, for example, would be one option. The key feature there is that you do typically get a higher interest rate than you would earn on your cash, but you get all of the safety or nearly all of the safety of cash, or you get cashlike attributes, I should say. You do have some greater safeguards than you would if you had your money within an IRA or in some sort of taxable brokerage account.
It will accumulate on a tax-deferred basis. You’ll owe money on the way out, when you are in retirement and taking withdrawals. Absolutely, because the quality can vary to such an extreme. Often times, unfortunately, it breaks down to the size of the plan.