For many Americans, a large part of your retirement net worth is contained within your company 401(k) plan. Employer’s encourage this type of saving by not only giving you an easy payroll deduction option, so your savings is automatic, but they also provide you with a match, up to a certain percentage and occasionally will even make profit sharing contributions to that plan. Additionally, they have the fiduciary responsibility to select the investment options available to you within their plan. Many times those options are basic index funds or other mutual funds that have passed a screening process that they and their investment counsel have selected. This works well for the many participants but as investment knowledge, in general, has increased and the demand for customization has become more popular, plan sponsors have started to roll out something called a self-directed brokerage option within their plan.
What is a 401(k) Self-directed Brokerage Option?
For the right investor or those that have the professional help of an advisor, this could lead to improved results and increased customizations for a participant within their retirement plan. A typical 401(k) might include 20 different mutual funds and a suite of target date funds (e.g. mutual funds with a year on the end of their name – designed to do it for you based on your estimated date of retirement). With a self-directed option, the investment universe, with perhaps some employer restrictions still incorporated, will now become vastly larger.
Take for example, an employer within our local community; Goodyear. Their plan has a few index fund options along with a target date suite and so for the novice investor this more than likely works out well. However, they also have a self-directed option through Charles Schwab. This means any mutual fund that is open and available through Charles Schwab, the Goodyear employee would have access to invest in, while still “inside” of the Goodyear 401(k) plan. This allows those employees to now pursue investment options, that perhaps can be more customized to their individual needs and preferences.
So, if a 401(k) participant were to invest in the Small Cap Growth Index option through their plan using the Vanguard Small Cap Growth ETF (ticker symbol VBK) as our proxy, they would have experienced a return of 12.75% over the last ten years (as of 5/31/2020), before any plan fees. However if the participant would have pursued the self-directed option, utilizing Whitaker-Myers Wealth Managers, as their investment advisor, our small cap growth fund option is typically Brown Capital Management Small Company Fund (ticker symbol BCSIX) which has returned 17.28% over that same ten year time period. Of course, when utilizing an investment advisor, you would need to account for the cost of the advisor and we always note that past performance, while helpful in understanding a fund manager’s ability to find value in the market through their stock selection, is no guarantee of future performance.
How to know if Whitaker-Myers Wealth Managers can help with your 401(k) self-directed brokerage option...
If the self-directed plan is held through Charles Schwab (many are either held through Schwab, Fidelity or TD Ameritrade), Whitaker-Myers Wealth Managers can not only select the investment options for your plan but we can also rebalance, monitor, make changes, and give customized reporting on the balances in their plan. For the right investor, this may be very appealing.
Should you be interested in determining if your plan has a self-directed option, please reach out to your Whitaker-Myers Wealth Managers financial advisor or call your plan Recordkeeper (whomever sends your statements) and ask if they provide you with a self-directed option. If so, should the plan custody those assets at Charles Schwab, we can start providing investment management on your plan by completing basic Schwab paperwork. Should your company provide the self-directed option, through TD Ameritrade, it is likely that Whitaker-Myers Wealth Managers, will be able to provide investment management on those accounts around the end of 2020, when Schwab’s acquisition of TD is complete.
If you have questions, you can reach out to one of the Whitaker-Myers Wealth Managers Advisors, HERE!
YOUR 401(K) COULD HAVE MORE OPTIONS THAN YOU THINK
June 19, 2020
Whitaker Myers
Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.
Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.
Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.
Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
