I've was always skeptical about socking money away in the company's 401(k) plan, but I invested regularly for 10 years. Some years the company gave me matching contributions and other years they suspended their contributions because of the down economy. It never seemed as though my money was growing fast enough. According to a recent article by CNNMoney, some workers can lose more than $100,000 in their retirement savings due to 401(k) fees. The article cited a recent analysis by FutureAdvisor of more than 2,300 company 401(k) plans. When it comes to my own savings, I've found a few ways to avoid paying as much in fees.
Rolling over my 401(k)
When the company I worked for sold its business last year, employees had the opportunity to either rollover their money into the new company's 401(k) plan or into a Rollover IRA. I decided to rollover the money into an IRA that I could control. With the IRA, I know exactly how much money it will cost to buy or sell an individual stock or mutual fund. Also, I use a discount brokerage firm that allows online trading. They charge a reasonable amount each time I make a trade.
Investing in no-fee funds
Another way I save money in fees is by choosing exchange traded funds that don't charge a commission fee. I've been happy with the return on many of the funds, in particular the ones that pay dividends every quarter. I'm able to watch my retirement account grow without worrying about the fees eating away at my savings.
Figuring out the fees
When I had my money in a 401(k) plan, I could never figure out how much I was paying in fees. According to the recent study by FutureAdvisor, the average expense ratio of the companies it analyzed was 0.68 percent. Most employee-sponsored retirement plans have low-fee options. With my Rollover IRA, I have been able to take advantage of their customer service line to ask questions about fees associated with different mutual funds and ETFs. I've started using their online research tools to find all the information I need to make a good decision.
Becoming an investigative investor
Even though new federal rules were put in place that require brokerage companies and banks to be more upfront about the fees they charge, I still find I have to hunt down the information. According to a recent survey by LIMRA, a financial services trade association, half of the people surveyed didn't know how much they paid in fees. Maybe plan providers aren't so transparent about the fees because they don't want people to know.
To a large extent, I can reduce my fees now by limiting the number of trades I make. I try to practice the "buy and hold" approach so that I'm not making excessive trades. My goal is to keep an individual stock for at least 5 years, buying on the dips. Since I still have to pay a small commission when I add to a position, I wait until the stock or fund has declined by at least 10 percent. Overtime, I'm able to see a solid return without high costs.
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