March 7, 2014
When looking at your investing options in your company retirement plan (401k, 403b, TSP, 457), what should you focus on? Why?
When looking at your investing options in your company retirement plan (401k, 403b, TSP, 457), what should you focus on? Why?
You should look at what you have to do to get your employer to match part of your contributions, you should also see if you have an option of going with a low cost index fund as an option, even if its not vanguard it will likely be the best thing you could do with your money, the Russel 3000 is a likely option. You need to look at what the costs are and see how your employee retirement plan fits in with the rest of your retirement options, you may want to go with bonds if you already have a large amount of stocks outside your employee contribution plan, it just matters where you are on your journey to requirement and you need to look at your own situation.
The most important thing to look at when investing in any retirement plan is the expense ratio. If the expense ratio is 2% and return on investment is 8%, you are only getting 6%. Why not get the full or close to 8%. You put up 100% of the capital and are taking all the risk. Why not get the most out of your money.
Another thing to watch is matching contributions. If your employer will match your contributions up say 5%, put in at least 5%. Its free money towards your future! Also educate yourself on their vesting period.
The combination of both answers, provided the correct answer. Let’s review.
Look for a broadly based index fund that mirrors the 3000 Russell or S & P 500 benchmark indexes. Next, focus on costs. Identify the expense ratio and make sure it is the lowest possible cost within your account. That expense ratio should be under .20 and ideally, it should be below .10%.
Costs matter! Index funds consistently beat managed mutual funds. Play the odds and own index funds and then feed them month after month after month. Financial freedom will follow!