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How Good Is Your Retirement Fund Planning and Investing?

By Mark Riddix

All 401k plans are not created equally and are not things you can simply put on “cruise control.” It’s important to review your 401k plan to see if it is properly invested in the optimal place for your retirement savings. A good plan can help you reach your investment goals and allow you to retire on time. A bad plan can put you behind the eight ball and make saving your money seem like a pointless endeavor and make retiring very difficult.

Here are a four ways to judge your retirement plan:

1. Investment choices

How many funds does your 401k offer? Do you have a plethora of funds to choose from or just a few? The more options that your retirement plan offers, the better off you are. Many modern plans even offer lots of ETF selections. I prefer fund companies that offer clear cut funds that allow you to identify exactly what you are investing in. This is better than investing in generic funds that just have titles like low risk or moderate fund. Funds like these give you no idea of what you are buying. You have to hope that the fund manager is really following the fund’s stated goals.

2. Fees being charged

As you well know, expenses can destroy the returns on your investment portfolio. This applies to your 401k plan as well. Fund companies do a great job of disguising fees in your retirement plan so that most people have no idea how much money is being taken from them. Some fund companies will list expenses at 1% or less even though they are actually getting much more than that from other means that they do not technically categorize as “expenses.” On top of these expenses, many employers will pass along the operating costs of the retirement plan to the employees so that employers they are not burdened with the bill. The costs are often split among all plan participants. Also, avoid funds that pay high commissions to plan advisers since the adviser’s commissions often come at the expense of the plan participant.

3. Company matches

The biggest advantage of a 401k is the matching component that is offered by the employer. What percentage of your contributions are matched by your employer? Is the plan fair to all employees? Do senior level employees get a higher percentage match than lower level employees? A generous matching plan can motivate you to max out your contribution amount each year. It will also help you get closer to your goal. A poor matching plan can make investing in your 401k seem like a poor idea compared to starting your own Roth IRA.

4. Fund performance

The performance of the funds in your portfolio can make or break your retirement dreams. Does your plan provider offer funds that are ranked highly by reputable agencies like Morningstar and Kiplinger? Or does your plan provider offer funds that are dogs that continually underperform the stock market? Check your fund’s performance over the past five to ten years. See how it has held up during market advances and declines in comparison with its competitors.

How would you rank your employer’s 401k?

(Photo credit: urban_data)

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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  • MatthewH

    I found it very important to consult a professional when it came to creating an investment menu for my company’s retirement plan. I used Steidle Pension Solutions to set up and advise my company on creating the investment menu for our Plan. I have been happy with their advice and service. I get regular updates on the performance of our options and suggestions on ways to improve the investments in our plan. I don’t have time to do this on my own so I certainly appreciate the help.

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