John Oliver on Retirement Plan Fees: Keep Them Below 1%
Adam Rifkin stashed this in Retirement
Good Reddit comment:
There are definitely good 401(k) plans and bad 401(k) plans, but even the bad ones are still better than saving in a taxable account. Even if you are paying 1-2% expense ratios (which is horrible, you should be concerned if the fees of the funds you're using are above 0.2% let alone 1-2%), the tax advantages are substantial and you generally will still come out ahead of a taxable account if you are able to roll your 401(k) into an IRA five to ten years before you retire (whenever that is).
Unless you're getting matching from your 401(k), you might be better off focusing on an IRA first. That's why the advice in "How to handle $" from our sidebar is:
- Emergency fund!
- Max out any employer match in your 401(k) or other employer plan.
- Pay down expensive debts.
- Max out your own IRA.
- Additional money into your 401(k) or other employer plan (until you reach at least 15% savings rate into retirement accounts).
- Whatever you want!
So, what should you do?
- Follow the advice in "How to handle $". Don't skip steps!
- If you have a bad plan, campaign for a better one. It can work!
- Make sure you're picking the best funds from your current plan. Yes, ideally this is low-cost index funds.
Finally, one note: Be careful not to confuse account types with the investments you put into them. 401(k) plans and IRAs are tax-advantaged accounts. Taxable brokerage accounts are another type of account. It's only inside of those accounts that you buy investments like mutual funds (which includes index funds and actively managed funds), ETFs (and both index and actively managed funds exist here too), and other things (that you probably don't want).
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More good Reddit comments:
Simply put, the effect of fees on investment can be devastating. When you consider that it's impossible to identify those active fund managers or actively managed funds that will outperform their benchmark after costs in advance, the low-cost, lazy index investing strategy starts to look pretty attractive.
best advice my dad gave me:
"Make sure you fund your retirement, not your money manager's."
A few other pieces of advice I picked up:
Similar to Mayor Ford's above: The market will go up and down. Don't pay someone to take the credit/blame.
When invested broadly (as you should be), continue to fund a crappy market just as you would when it's growing.
More income means more to save and invest. If you have an opportunity to gain knowledge/skills and grow your value, do it. It's one of the most sure-fire investments.
If you're going more complex in your investment, don't invest in something you don't understand. This obviously doesn't apply to indexed funds as much, but you can get into trouble if you don't understand the tax advantages of a muni bond index, the potential volatility of a global/international index, etc.
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How Vanguard radically changed money management by being boring and cheap: