Mutual funds come in two types: load funds and no-load funds. Load mutual funds charge either a front-end (purchase) or back-end (liquidation) fee on shares. No-load funds do not. Both work equally well with 401k Solution plans.
Because most no-load mutual funds do not involve fees, (or only very nominal fees) upon purchase or liquidation, most 401k investors prefer them to load funds. Thus, most employers prefer to equip their 401k plan with no-load funds rather than load mutual funds. Thus, we focus our 401k investment discussions on no-load mutual funds, not load mutual funds.
Again, because of the lower fees involved, no-load mutual funds are generally preferred over load mutual funds by 401k investors. If, however, your company prefers to offer a family of load mutual funds as its 401k investments, we can certainly accommodate you. Simply contact us for a listing of potential load mutual fund families - and remember, whether it's load or no-load mutual funds that you're considering, make sure you and your 401k investors carefully read the investment prospectuses so you're aware of any and all fees before allocating any money to the investment. Prospectuses are most readily available through the mutual fund company, whether by mail, e-mail or online. Use the contact information offered in our Potential 401k Mutual Fund Investments listing.
Because most no-load mutual funds do not involve fees, (or only very nominal fees) upon purchase or liquidation, most 401k investors prefer them to load funds. Thus, most employers prefer to equip their 401k plan with no-load funds rather than load mutual funds. Thus, we focus our 401k investment discussions on no-load mutual funds, not load mutual funds.
All mutual funds, whether load or no-load, involve annual management fees and 12-b1 fees. These are automatically deducted from investors' returns each year. Certain transaction fees may also apply.
Each mutual fund family, whether load or no-load, offers a spectrum of investments, from a money market fund to potentially more volatile, potentially more lucrative, stock and bond portfolios, to meet varying risk-return scenarios.
Choosing no-load mutual funds for your company plan means contributions to your employees 401k accounts won't be diminished by any investment purchase or liquidation fees; the full amount makes it into the investment.
Using no-load investments generally means relatively low asset management and 12b-1 fees for your plan's participants. Your participants keep more of what they invest, increasing the compounding growth potential of their accounts.
Again, because of the lower fees involved, no-load mutual funds are generally preferred over load mutual funds by 401k investors. If, however, your company prefers to offer a family of load mutual funds as its 401k investments, we can certainly accommodate you. Simply contact us for a listing of potential load mutual fund families - and remember, whether it's load or no-load mutual funds that you're considering, make sure you and your 401k investors carefully read the investment prospectuses so you're aware of any and all fees before allocating any money to the investment. Prospectuses are most readily available through the mutual fund company, whether by mail, e-mail or online. Use the contact information offered in our Potential 401k Mutual Fund Investments listing.
As discussed above, mutual funds are the number one choice of 401k investors, and most 401k investors prefer no-load mutual funds to load mutual funds.
With self-directed brokerage accounts your 401k investors have access to all types of mutual funds as well as to stocks, bonds and other types of investments (visit our Self-Directed Brokerage Accounts page for details). So are self-directed brokerage accounts more desirable for your 401k than a plan that only offers mutual funds?
There are many reasons why employees might favor individual 401k self-directed brokerage accounts - the investment selection, the sense of hands-on control, the quick-access to account information. Other employees, though, might feel intimidated or overwhelmed by the extent of investment choice; they might prefer their employer having narrowed the field to a single family of no-load mutual funds that offers sufficient investment selection within a grouping small enough that investors can look at each fund carefully before choosing the one(s) that are right for them.
With self-directed brokerage accounts your 401k investors have access to all types of mutual funds as well as to stocks, bonds and other types of investments (visit our Self-Directed Brokerage Accounts page for details). So are self-directed brokerage accounts more desirable for your 401k than a plan that only offers mutual funds?
There are many reasons why employees might favor individual 401k self-directed brokerage accounts - the investment selection, the sense of hands-on control, the quick-access to account information. Other employees, though, might feel intimidated or overwhelmed by the extent of investment choice; they might prefer their employer having narrowed the field to a single family of no-load mutual funds that offers sufficient investment selection within a grouping small enough that investors can look at each fund carefully before choosing the one(s) that are right for them.
With 401k Solution, your company can offer either no-load mutual funds or self-directed brokerage accounts - or both.
Go to a listing of potential no-load mutual fund families for your 401k plan.
Go to a listing of potential self-directed brokerage accounts for your 401k plan.
In selecting a mutual fund group for your 401k plan, it's important to include a spectrum of investments:
In this way your 401k plan will appeal to employees interested in amassing any of a variety of portfolio mixes. Employees can select portfolios that match their investment experience, temperament and objectives.
Include a money market fund for conservative investors seeking capital preservation.
Include some lower-risk equity and bond portfolios.
Include some medium-risk equity and bond portfolios.
Include some high-risk/potentially-higher-return equity and bond portfolios.
In this way your 401k plan will appeal to employees interested in amassing any of a variety of portfolio mixes. Employees can select portfolios that match their investment experience, temperament and objectives.
The above is not meant as a cookie-cutter formula for arriving at your 401k investment mix. It is a good idea to consult a professional tax and/or investment advisor in making your final decisions. We can help, too.
Please also glance through the below comments on Risk, Return and Investing and
the Frequent Trading of Mutual Funds.
Performance information adds to your knowledge about an investment gained from reading the investment's prospectus. The most common ways to get specific investment performance information are:
Keep in mind...
Contact the investment company directly.
Utilize free online mutual fund rating services. A web search for "investment ratings" will bring up dozens of independent, consumer-oriented mutual fund rating services. Morningstar (www.morningstar.com), Standard & Poor (www.ratings.standardpoor.com), Value Line (www.valueline.com), Mutual Fund Investor's Center (www.mfea.com), and Smart Money (www.smartmoney.com) are some of the most popular sources for independent, unbiased ratings and comparisons; they have solid reputations, but they're by no means the only reliable services.
Utilize your favorite web browser or search engine. All have quick access to mutual fund information. Please refer to your particular browser/search engine for details.
Keep in mind...
Most rating services charge for certain types of performance information.
Performance information received from mutual fund companies is generally free.
Investing is a risk-return dichotomy. Mutual fund money market investments are considered very safe, and offer a relatively low, predictable rate of return, although that return, like any, cannot be guaranteed. At the other end of the risk-return dichotomy are mutual funds that can be extremely violate, offering investors the possibility of dramatic gains (and losses). Mutual fund investments can lose value in a volatile market -- just as they can gain value.
Shares of mutual funds, including money market funds offered by fund companies, are not guaranteed by any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, or any other agency, and they involve risk, including the possible loss of the principal amount invested.
In general, the more volatile a mutual fund investment (i.e., the less predictable its rate of return), the more POTENTIALLY lucrative its earnings. More volatile investments are considered to be more risky investments.
The investment return and principal value of an investment will fluctuate. An investor's shares, when redeemed, may be worth more or less than when purchased.
According to the Investment Company Institute, the mutual fund industry's trade association, for the twelve months from July 30, 1999 to July 30, 2000, approximately 42% of assets in the average stock mutual fund were bought or sold, meaning only a bit more than half the money in the fund actually stayed put for that period. That is up from approximately 40% turnover for the 12 months prior. Some retirement plan experts believe some of this fast trading is occurring in 401k plans.
With 401k Solution you can discourage frequent trading by limiting your 401k investment selection to a single family of no-load mutual funds.
According to most academic studies, frequent trading of mutual funds to squeeze out a few percentage points of gain a bad idea. Studies confirm what has been suspected by professional money managers for years - namely, frequent mutual fund trading usually hurts investors' long-term returns.
As reported in the Wall Street Journal (9/22/00, Lucchetti, Aaron, "Frequent Trading Worries Fund Firms"), a recent study by University of California, Davis assistant professor Terrance Odean and professor Brad Barber found that investors who traded mutual funds most frequently had the worst returns for a five-and-a-half year period ending December 1996.
During that period the average household earned an annualized return of approximately 15.3% from their mutual fund investments. Frequent mutual fund traders earned an average annualized return of only 10% for the same period.
With 401k Solution you can discourage frequent trading by limiting your 401k investment selection to a single family of no-load mutual funds.
By offering a single family of no-load mutual funds PLUS self-directed brokerage accounts, which is also an option with 401k Solution, you leave the door open for more sophisticated investors to choose self-directed brokerage accounts and thus trade stocks, bonds and mutual funds whenever they see fit while steering less sophisticated investors to the less intimidating, less complicated world of a single family of quality no-load mutual funds.
All "load" and "no load" mutual fund investment companies charge their investors annual management fees to cover the fund's operating expenses. Management fees cover such expenses as auditing, record keeping, administration, mailing of statements, advertising, providing telephone support, investment managers salaries, commissions to brokers, etc. Typically these management fees, which are automatically deducted from each investors account, range from a low of 1/2 percent to a high of 2 percent annually.
Information concerning a fund's management fees is always available by contacting the fund company or referring to the fund's investment prospectus.
Some mutual fund investors have the misconception that management fees are set and regulated by the federal government, and that one company's fees are like another's. In fact, management fees are set independently by each mutual fund company. The impact of derivations in fees can be quite significant over time.
For example, assume a 10 percent return on an initial investment of $25,000. A mutual fund with an annual management fee of 1.3 percent will yield $31,700 LESS over 20 years than a mutual fund with a management fee of just 0.2 percent, all other things being equal. That's a lot of foregone retirement savings!
Information concerning a fund's management fees is always available by contacting the fund company or referring to the fund's investment prospectus.