The 401(k) market is the last frontier for exchange traded funds (ETFs) to fully break into, and the latest market upheaval may lead to an easier road for these funds to break into this segment of the market.
Many individual investors are switching their retirement savings plans over to a pure ETF platform. Murray Coleman for Index Universe showcases one example, the owner of Lafayette Copier Sales & Service Inc. in Lafayette, Indiana. The owner had been using a 401(k) plan only offering mutual funds. But about a month ago, the plan’s service provider worked out a system that allows participants to create their own portfolios and freely transact using any iShares ETFs currently on the market.
The retirement markets need the flexibility of ETFs, since they trade at any time of the day, have total transparency and the ability to buy in fractional shares. These plans are still few and far between, however, the more employers that see how ETFs can be useful to 401(k) plans, the more will switch over.
Keep pressing your human resources department to have plans that offer ETFs. The more noise investors make, the more this will change.
Sara Hansard for Investment News reports that requiring annuties or fixed-income as an option in a 401(k) plan is being considered by the House Education and Labor Committee. Today, only about one-third of 401(k) plans have a fixed-income option.
In addition, the committee is looking at a requirement that 401(k) fees be “unbundled” into broad categories so that employers and employees could determine investment management fees, administrative fees and a few other types of fees. This works well with an ETF paltform because the nature of an ETF involves transparency.
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.