When determining which fund to choose for your employer-sponsored retirement plan, it can seem like the options are endless!
There are a few things you can look at to help you make a decision:
1. What are the fees?
While regulations are making the fees charged a little more transparent, there are still hidden fees. But, looking at the listed fees on the list of funds offered by your employer’s broker can help you choose one that has low fees. While 1/10 of a percent may not seem like much on paper, it can have a huge impact on how much you have available at retirement. And, it can have a major impact on your balance if you are no longer contributing to that fund.
I recently cashed out a $60,000 retirement account that was losing $1,000 per month in fees. I would rather pay the 10% penalty to the IRS and be able to invest it where I choose than to give that money to the fund manager.
2. How does its performance compare to the benchmark?
For each fund you are going to see it’s past performance and the performance of a benchmark for the same time period. Ideally your fund will have a history of being close to, if not outperforming the benchmark. And, while past performance does not indicate future results (oh, how they love to remind us of this!), it could give you an idea of how well your fund manager performs his or her job.
3. Know the difference between fund types.
There are many mutual funds to choose from including bonds, money market funds, small cap, mid cap, large cap, index, ETFs, bonds, hybrid, balanced, target, growth, value, equity, socially responsible, sector, international, global, target-date, and others.
Remember, your employer’s broker has a responsibility to answer all of your questions. He is paid to do so.
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