Buy Low Sell High
Worcester, MA
Female, 49
I converted an existing 401k for a small tech company about a year ago. I moved us from an insurance company to a brokerage platform. We are saving a ton on fees.
I have also a background in financial planning, so I know how the 401k can fit into your daily budget. The biggest problem I see is that people do not know how to take advantage of this awesome tax gift from Uncle Sam. I think the reason if that most people do not know how to approach their HR department and ask questions.
I keep a pretty close eye on industry changes, and that is not one that I have heard. At the moment, the IRS allows you to take pre-tax money and save it until you turn 70.5 at which point you must begin taking the money out (taxed).
The only changes I read about are pushed by progressive-minded strategist who would like to see the whole system dismantled (arguing that only the rich can afford to save this way) and replaced with a mandatory withholding from wages that would be invested with a guaranteed 3% return. So far this idea has not gotten traction, but if young people don't start using the 401k system (voluntarily) then it may eventually get replaced.
The one change that I have seen, as a result of people living longer, is the trend to keep money in the stock market after retirement so purchasing power is maintained.
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I'm not really good with numbers, I am good with seeing "systems of value". I know how to get a dollar to dance with wolves ; )
If you have one dollar in a taxable account and it could be in a retirement account, you are losing value. That is not math, just sensible.
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Hey! Don't clue the boss in! I'm getting really good at Flappy Birds and the gig is up if he realizes I'm just a 401k meme.
Actually, the 401k is only part of my job, I also run the other benefits. But, an in-house admin has a lot to do besides look good. I help participants navigate their investment choices (remember, once you give them an open platform then the world is their oyster - and, new money is coming in each pay period.); I make sure we fulfill all the ERISA requirements (like fee disclosure and getting people to designate a beneficiary); and this time of year I have to fill out all the paperwork for our TPA to be able to file the mandatory 5500 filing with the government.
TPA's (third party administrators) probably also call themselves 401k administrators and they keep busy because they have so many clients. My work is more diverse but I know enough about it that I thought I could share the inside scoop.
If someone found this work interesting they would probably gravitate to the CFP program and work as a financial advisor.
Thanks for asking.
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Hi, this is a good question. I imagine that a lot of people eagerly open their paperwork or log on to a web site expecting to see a great list of investments only to be disappointed by a list of odd-named mutual funds.
First, a clarification. If you are able to invest in mutual funds then you are also investing in stock. Mutual funds are groups of stocks - usually grouped by a particular characteristic (like: large companies or foreign companies). It is a good idea to have a mutual fund (or ETF) if you have a small amount of money.
Why is the selection so limited? I assume it is to save money. The more choices then the more work to reconcile. More work means less profit. There are laws to make sure that some minimum number is offered, but usually the choices are still really unsatisfying.
By your comment, I assume that you wish you had a brokerage platform 401k instead of a mutual fund based plan. That is a very smart wish! I don't want to name any names, but (insert large mutual fund company name here) allows 401k participants to convert to a brokerage platforms once they have about $3000 in the account. I would recommend scrolling all the way to the bottom of your "overview" and read the tiny print. If you see any hyper-links to brokerage then your plan may have that option. You will have to fill out some separate forms.
Once you are in brokerage nirvana, ERISA (the governing framework for retirement plans) will still have limitations. You can buy and sell any normal exchange traded security but you cannot write options if you do not own the stock.
Since many derivatives/options have the potential for large loss, the only one allowed is a "covered call".
So, you could "write a call" on the 100 shares of IBM that you own but you cannot "write a call" on the Facebook shares that you do not own.
Best!
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Casting Director
Are the melt-down auditions on American Idol staged?
Antiques Dealer
If you buy an item that turns out to be stolen, do you have to turn it over to the police?
SWAT Team Commander (Retired)
How much protection do those bomb disposal suits really provide?
LOL, that's a good question! Since we use a brokerage platform, and therefore they can buy anything they want from cash to gold, it would be hard for them not to take personal responsibilty for their choices. Most of them are just happy when the balance goes up.
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Absolutely not. I compare it to driving a manual transmission. Most Americans think that it is too hard to drive a "stick" because they have not real incentive (as they can just drive an automatic).
It is not easy for young people to take the time to plan ahead, especially when they feel like there are so many unknowns. I have heard that one firm is using age-progression to help young people think of themselves as old.
I have the same chat with people in their 40's all the time: "If ONLY I had started younger!". Oh well, the wisdom of age ; )
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I will have to come back later to give a better answer, but basically you are removing several layers of "middle men" (high margin middle men) and you are essentially deregulating what people can invest in, more choice means the consumer can buy cheaper product.
There are exceptions - I have seen some large, union-organized firms with fabulous plans. Maybe they are so big or prestigious that they good a good deal or maybe someone negotiated a great deal for the employees.
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