Laura Bruce of Bankrate.com wrote about exchange traded funds making headway in 401k plans. In her report she finds that ETFs can help build a retirement portfolio at less cost. Especially for small companies who don’t have high dollar contributions, but pay high fees for setting up a 401k. Larger companies on the other hand might qualify for low, institutional expense ratios and not find a need for ETFs in a 401k plan.
Providers are finding ways around the drawbacks of ETFs in 401k plans, the main drawbacks being a commission is charged for every trade and that ETFs can be traded throughout the day. Invest n Retire keeps commissions down by allowing participants one trade per day, which the company aggregates to make large trades a the end of the day.
With the Pension Protection Act of 2006, employers can automatically enroll workers, which means someone else is choosing their investment options. ETFs could be a great option for a default. And as more investors know, understand and use ETFs they will want them in their 401k plans.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.