What is wrong with a 401(k) Part-1

What is wrong with a 401(k)?

Long ago, the financial instrument we know today as a 401(k) did not exist.

Companies opted out by offering pensions of managed large pools. These pensions demanded good money managers. The incentive was simple; you had a fiduciary duty to the clients. If the managers of the funds did not perform, they would lose the multi-million dollar account of those companies.

Then came the birth of the 401(k)

in which the majority of individuals with no desire or poor knowledge of investing were forced to make a personal decision about where to put their retirement money. There is little help from the brokerage firm providing the 401(k) in spite of the percentage fee they charge. It is highly encouraged for individuals to have one if their employer provides one (which we don't discourage if your employer is matching a percentage of it). 

If one lacks knowledge in a matter that affects one's future such as financials, it should certainly instill discomfort to be the one that must make decisions as to what funds to choose from in your 401(k).

The average rate of return in a 401(k) is slightly over 2% vs. the S&P500 of 7%. If at 7% you double your money in 10 years, well at 2% it is going to take a lot longer than that. The business of the 401(k) is not to sell portfolios that could accumulate growth, but to sell a product and collect their fee.

In the end, you have been given the baton on retirement, and it is your responsibility to do your research; it is, then, no longer in the hands of Wall Street.

At Sonoman Investments we invest our money alongside yours. ​​

Written by:
Alex Lopez
Posted on:
August 7, 2017