Most participants are unaware that they are paying up to two or three percent out of their own pockets to cover fund expenses and management fees. As more well-established, big name brand institutions join the fray, the 401(k) market place will experience greater exposure to ETFs. [Schwab On Schedule For ETF 401(k) Launch.]
More recently, Jim McCool, executive vice president of institutional business at Charles Schwab, stated that the brokerage firm are planning out 401(k) retirement plans solely based on ETFs, reports Mary Pilon for The Wall Street Journal. Schwab will cater to companies where 401(k) plans are mainly comprised of actively managed mutual funds, since the funds have higher fees than index funds or ETFs. However, critics are warning that active trading of ETFs in 401(k)s could create higher volatility within the markets, which would cause divergences from net asset prices.
Naturally, ETFs look to be the optimal fund alternative because of their innate low costs and expenses. Additionally, research has evinced that low-expense funds have historically outperformed the high-cost mutual funds, and the performances would only compound over time. [TD Ameritrade Offers ETFs On 401 (k) Platform.]
For more information on 401(k)s, visit our 401(k) category.
Max Chen contributed to this article.