Too much of the mutual fund fees can diminish returns on a retirement plan. But most do not realize that until it is too late. Here are the most common signs that tell you if you have signed up for a bad 401(k) plan.
The Fee is over the Top
Market fluctuation is not the biggest risk to 401(k) retirement portfolio, it the fee that is charged. An average small business comes with annual fee that is equal to 1.56% of all assets. This means that for every $10,000 that one invests, $156 goes towards fees every year. In 12 months time that may not feel like too much, but over the decades one spends in a workplace, this number can add up to be a fortune. If one investor contributes the maximum amount into a 401(k) on a monthly basis over the course of 25 years, their annual return on S&P 500 will be 9.62%.
It is Not Exactly User Friendly
It is not the easiest thing in the world to get started on a 401(k) plan. Some people never even do because of this. However automated enrolling is exactly what is meant to counter this. As an employer, one should do whatever they can to provide their employees with this.
401(k) administrators that only focus on bringing in new participants for the plan instead of improving on the user experience of the ones who have already signed up for this, run inferior administrations. This is because they believe that for them it is more cost effective to invest in attracting more customers than working on satisfying the ones that they already have.
Instead a good plan in one that offers you easy access through modern technologies that are used for connecting with friends, shopping, investing, and banking. A 401(k) plan should be very easy to access through whatever device one decides is easy for them.
On top of that, most middle tier plan administrators invest a lot in the salesy sites they have, which gives off an impression of their supposedly impeccable service, when it is just there to attract more customers.
Lack of Fund Diversity
Fund selection goes beyond the prospect of fees. Mutual funds are available in all sorts of varieties, and it does not matter how bad the retirement saving plan is. The deal is that these funds are never really run by investment professionals who invest in assets and try to beat a target index.
Index funds are managed passively, and match a certain index by simply mimicking it. This is because an index fund does not need research and saves on administration costs. Now when the time comes to cut the fee from the performance of an actively managed fund, equity returns always underperformed target indices when it comes to long term horizons on investments. And this is not all, at times, investors are overwhelmed by the different asset classes that are available, and against those prefer funds that are self adjusting and simple.