An investment plan does not have to fit inside of someone else’s box; the traditional 401(k) plan that works for everyone else may not be quite what you had in mind, especially if you appreciate all that exchange traded funds (ETFs) have to offer.
John Spence for The Wall Street Journal reports that some financial advisors are recommending ETFs outside clients’ corporate retirement plans as a low-cost way to round out people’s investment portfolios. Many investors get caught up in whatever is being offered through their employment plans, and loking elsewhere for alternatives is a good choice.
The traditional 401(k) plan is made up of mutual funds that focus on U.S. stocks and bonds, and internatioanl stocks from developed nations. These catergories are limiting, not to mention expensive, and many advisors recommend 5%-10% of a portfolio being allocated to commodities, such as gold.
If you’re stuck in stocks and bonds, are you really getting everything out of your 401(k) plan that you could be?
Unlike individual stocks or bonds, ETFs can be used to track entire market sectors, such as commodities or real estate. And they give investors greater flexibility than mutual funds, because they trade all day on exchanges. They’re less expensive than mutual funds, on average, because they don’t require a manager. Your cost savings over time will be significant. They also provide greater diversification – in one fund, you can get 25, 75, 200 or more stocks.
If you’re a small business owner, ING offers a 401(k) plan that’s easy to use.
So when you plan on your retirement investments, make sure to think outside of the box that you are handed, because there are plenty more options available.