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I work for a 300-person company and we've signed up with Smith Barney for
mutual funds. After doing some research, the only decent fund out of the
total 12 funds is Europacific growth fund/R3 and it doesn't have a front or
deferred load. All others have a front load of 5.75%
1) Should I usually aim to invest in a fund that doesn't have any load vs.
one that does?
2) Will this distinction only hurt me on my initial investment or will the
front-load apply for every year till I keep investing in the fund? How does
it exactly work? I know there's going to be a 401k deduction from my pay
check bi-weekly and invested in the fund. Is that the time the front-load is
applied and thus would be applied every 2 weeks for years to come?
Thank you
"Sam" <n...@n...com> writes:
> I work for a 300-person company and we've signed up with Smith Barney for
> mutual funds. After doing some research, the only decent fund out of the
> total 12 funds is Europacific growth fund/R3 and it doesn't have a front or
> deferred load. All others have a front load of 5.75%
Are you sure about this? Some 401(k) plans offer load funds but waive
the load. Double-check your plan information and/or ask your HR person
to verify this.
> 1) Should I usually aim to invest in a fund that doesn't have any load vs.
> one that does?
Definitely.
> 2) Will this distinction only hurt me on my initial investment or will the
> front-load apply for every year till I keep investing in the fund? How does
> it exactly work? I know there's going to be a 401k deduction from my pay
> check bi-weekly and invested in the fund. Is that the time the front-load is
> applied and thus would be applied every 2 weeks for years to come?
If there is indeed a 5.75% front load, this means that when you contribute
$100 to your plan, the fees will immediately suck up $5.75 of that money,
and you'll only be investing $94.25. This is a Very Bad Thing.
Does your employer offer any matching on your 401(k) contributions?
My advice would be to invest only enough to get the full employer
match, and instead start maxing out a Roth IRA, where you can get full
control of your investments and find better funds without a load. Use
the limited investment choices in your 401(k) plan to round out your
Roth portfolio instead of vice-versa.
You can also try bitching and complaining to your HR department about
the lousy 401K plan, and getting your co-workers to do so as well. A
company with 300 employees ought to have enough leverage to be able to
negotiate a better deal on their behalf.
-Sandra the cynic
"Sam" <n...@n...com> wrote in message
news:56gdi.5294$tb6.4709@newsread3.news.pas.earthlin
k.net...
> I work for a 300-person company and we've signed up with Smith Barney for
> mutual funds. After doing some research, the only decent fund out of the
> total 12 funds is Europacific growth fund/R3 and it doesn't have a front
> or deferred load. All others have a front load of 5.75%
People who favor load funds sometimes claim that they provide advice. One
wonders how advice is extended to everybody in your company who has to
choose from those 12 funds. All 300 of you should get together and have a
serious discussion with senior management as to why those particular funds
were chosen in the first place.
Sandra Loosemore wrote:
> Does your employer offer any matching on your 401(k) contributions?
> My advice would be to invest only enough to get the full employer
> match, and instead start maxing out a Roth IRA, where you can get full
> control of your investments and find better funds without a load. Use
> the limited investment choices in your 401(k) plan to round out your
> Roth portfolio instead of vice-versa.
This is dead on target. If the company matches even 50% of the first
say, 6%, you put in, then your $4000 becomes $6000, and after load,
$5655. So to my thinking, you can treat it as if there were just a 40%
match. If there is no match at all, I'd follow Sandra's advice, max out
the Roth at $4000, and invest post tax. Dividends and cap gains are
favorably treated, and you can invest sub .25%/yr expense.
JOE
My company doesn't at all ever get close to contributing 50% or dollar for a
dollar. In fact, the number changes every year with this year being 7% but
they do contribute 7% of the entire amount invested by the employee (max
$15,500 this year). In better performance years, they have gone up to 25%
Are these numbers on the low side?
"Don" <d...@t...net> wrote in message
news:Guhdi.31744$kY6.12751@edtnps82...
> "Sam" <n...@n...com> wrote in message
> news:56gdi.5294$tb6.4709@newsread3.news.pas.earthlin
k.net...
>
>> I work for a 300-person company and we've signed up with Smith Barney for
>> mutual funds. After doing some research, the only decent fund out of the
>> total 12 funds is Europacific growth fund/R3 and it doesn't have a front
>> or deferred load. All others have a front load of 5.75%
>
> People who favor load funds sometimes claim that they provide advice. One
> wonders how advice is extended to everybody in your company who has to
> choose from those 12 funds. All 300 of you should get together and have a
> serious discussion with senior management as to why those particular funds
> were chosen in the first place.
"Sam" <n...@n...com> writes:
> My company doesn't at all ever get close to contributing 50% or dollar for a
> dollar. In fact, the number changes every year with this year being 7% but
> they do contribute 7% of the entire amount invested by the employee (max
> $15,500 this year). In better performance years, they have gone up to 25%
>
> Are these numbers on the low side?
I'd say it's probably more common for employers not to match at all if
they aren't going to offer something like a 50% match on the first 5%
of your salary. OTOH, if you max out your contribution, even 7% on
the entire amount of your contribution isn't that shabby in
comparison. It's at least enough to cover the sales load on the funds
in the plan. I'd stick by my earlier advice of cherry-picking the
best fund(s) from your 401(K) plan and putting the rest of your
retirement savings in a Roth IRA instead, unless you have so much
extra money to invest that you really need to max out your pre-tax
contributions to the 401(K) plan, too.
-Sandra the cynic
Sam wrote:
> My company doesn't at all ever get close to contributing 50% or dollar for a
> dollar. In fact, the number changes every year with this year being 7% but
> they do contribute 7% of the entire amount invested by the employee (max
> $15,500 this year). In better performance years, they have gone up to 25%
>
> Are these numbers on the low side?
Unfortunately, very low. I haven't seen hard data, but articles suggest
that a 50% match on the first 6% of the salary is typical.
I'd advise you to re-read the 401(k) documents. You may have a 100%
match of the first 7% saved, but are mis-reading it. I hope that's the
case. If they are really just giving you 7 cents on the dollar, and you
have that near 6% load, I'd pass completely on the 401(k) and go Roth IRA.
JOE
Sam wrote:
> I work for a 300-person company and we've signed up with Smith Barney for
> mutual funds. After doing some research, the only decent fund out of the
> total 12 funds is Europacific growth fund/R3 and it doesn't have a front or
> deferred load. All others have a front load of 5.75%
I've given this more thought, and googled a bit.
Is this fund from 'American Funds'? They do carry the front end load, as
well as the usual annual expenses. This is the other piece of the puzzle
we are missing here, what are the expenses of the funds? With such low
matching (if we understand the numbers correctly) the expense ratio can
easily wipe out the tax advantage of the 401(k) account.
I wrote an article on my site at http://www.joetaxpayer.com/401rip.html
commenting on that tradeoff, deferral vs expenses.
The decision you make would also depend on other details you haven't
provided. If you are in a relatively low tax bracket, the 401(k) can
actually put you in a higher bracket at retirement. On the flip side, if
you are in the 28% or higher, but have little pretax savings, the tax
benefit can be worthwhile. More details would help guide you.
JOE
I think the matching rates vary from industry to industry,
but are fairly consistent within an industry.
Auto companies have suspended matching during their
troubled times, while oil companies are int he 6-8% range.
rick++ wrote:
> I think the matching rates vary from industry to industry,
> but are fairly consistent within an industry.
> Auto companies have suspended matching during their
> troubled times, while oil companies are int he 6-8% range.
Rick - ExxonMobil matches the first 6% deposited dollar for dollar. I
use the wording "100% match on the first 6% one deposits".
My employer happens to offer 100% match on the first 5%.
The OP wrote "they do contribute 7% of the entire amount invested by the
employee". I read this to mean that if OP puts in $10000, he gets a $700
match. The difference between what Exxon gets and what the OP implied is
quite a bit. This is one of those cases that precision of wording is
pretty important to our understanding.
JOE
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