Yesterday’s 401k Investments Can Cost you Big in Today’s Economy

By • on April 14, 2011 • Filed under: Articles of Interest, Plan Participants, Plan Sponsors

401k investment

Investing in Today’s Markets Requires More 401k Investment Options, Lower Costs

We’re in a new age of investing. If the reality check of 2008-2009’s “sky is falling” stock market didn’t help you recognize that, then here is your wake-up call.

Say goodbye to the days of “index and forget it” and welcome to the Global Economy & lower-cost 401k investment options. No longer should you limit yourself to 5-20 mutual funds as your 401k investment choices in the ups & downs of today’s market. Can you afford to miss out on an entire sector because it is not a part of your 401k investment options? No longer should you rationalize paying 2-3%+ in expense ratios.

Did you know that if you have a 401(k) account worth $100,000 with 35 years until retirement, the difference between an 8% annual return and a 7% annual return could be over $400,000?

Retirement plans, more specifically 401(k) plans, are very susceptible to not being prepared for today’s economy. A lot of plans selected their mutual fund options years ago and may have never updated their selections – a large reason why these accounts took massive hits during the recent recession. In 2002, the median number of 401k investment options offered by 401(k) plans was 13 (1)! If you can buy any mutual fund, stock, ETF, bond or CD in your brokerage account or IRA, why not have those options in a 401(k) plan?

Inverse funds allow you to profit off of a declining market. Once interest rates start climbing back up, an inverse bond fund will be able to take advantage of the decrease in bond prices. Precious Metals is a sector which has had an average annual return 25.32% over the last 10 years (2) vs. the S&P 500’s 3.35% average annual return (3). Can you buy these in your 401(k)?

Managed Account Options

Managed accounts are new 401k investment options that have become very popular. Their popularity has been largely spurred since the rise of Target Date mutual funds. Target Date funds finally gave people a way to invest their money without having to actually research and pick mutual funds. Target Date funds’ poor performance in 2007-2009 led many people to seek actively-managed accounts (Target Date funds are inherently stagnant, with pre-set allocations that automatically adjust every X years).

With the instant access that the Internet provides, people are often too quick to make irrational decisions about their investments. It’s instinct; something we’re born with. If you’re hand touches a hot stove you’re going to pull it away (hopefully!). Sometimes, though, you need to do the opposite of your instincts when it comes to investing. Stock market taking a dive – The average investor wants to sell and cut their losses. This leads to selling, generally, at a loss. Oh, now the stock market’s going back up? – Let me reinvest everything I sold last month. What’s the result? Missing out on the opportunity to average-down their cost of investments and missing out on a large part of those market gains when the market starts to rise.

Save Money on 401k Investment

So, what if you have all of the right investment options? Well, the first thing you need to do is make sure you’re not paying too much for them. The tough part about that is knowing how much is too much. See that statistic about a 1% difference in return causing a $400,000 difference in an account balance? Well that 1% could easily be a fee you don’t need to be paying.

The best way to know if you’re paying reasonable expenses is simply to shop around. The Internet is a great tool and you can get quotes from various providers with less than an hour of researching. Maybe your costs are right in line with others. But, maybe you’ve been paying too much this whole time! It’s never too late to correct that, though. Many providers have been lowering their costs of investments due to the recent changes in fee disclosure rules (4).

You Get What You Give

Making sure you have the right investment options may take some research. Determining if you can lower the cost of investments (thus, increasing your final retirement balance) can take some time, too. But, the money you can potentially save is more than worth the time that you’ll put into the research.

Where to get more information 401k investment options:

A free plan review can be provided by the associates of Reviews include a comparison of mutual funds that your provider allows versus a list of thousands of no-load mutual funds. Breakdowns can include return, expense ratio, and rating of the fund. Visit them online at for more information.


Articles on this site are for guidance only. No intention, however phrased, to offer investment recommendations or tax advice is intended, should be inferred, or acted upon by the reader without due diligence. No guarantee of the accuracy of the content is given or inferred. It is our recommendation and the responsibility of readers that they make their own further independent investigations before making any investment decisions.

Visit to learn more about 401k investment options and other 401k topics.

Leave a Reply