In recent years there has been a movement to provide investors with more transparency about what, exactly, they are paying in fees. In some cases, it’s relatively easy to see what you are paying. If you invest through a online broker, you can see what you are paying in commissions.
Things are a little murkier, though, when you invest through your company’s 401(k) plan. You might have a vague idea that you pay fees, or that you pay a percentage of your account balance each year, but that information isn’t exactly the most straightforward, and it can be difficult to picture.
Find Out What You’re Paying in Fees
The good news is that steps have been taken to allow workers to see how much they are paying in 401(k) fees. Last year, a law went into effect insisting on 401(k) fee disclosures. These new fee disclosures make it much easier to see how much money you are spending on fees. Quarterly statements now show the dollar amounts of fees and expenses deducted from your 401(k) balance. On top of that, a description of the charges has to be included.
With this information, it’s much easier to see, in understandable and “real” terms how much fees are eating to your returns. You can also see if there are other services you should have access to, such as consultations. You should also be able to determine whether or not you have the ability to move your money into lower-cost investments within the plan.
Not only do you have access to better information on your 401(k) account statements, but you can also get an outside opinion from Personal Capital. This freemium investment app can help you see exactly what actions can be taken to improve your overall retirement account performance by reducing your fees. When you link your 401(k) through Personal Capital, you can run the 401(k) fee analyzer to see where you could see some improvement.
In addition to seeing what fees you are paying, you are also provided with different scenarios that can give you a good idea of what else is out there. You receive recommendations for reducing your fees — and boosting your returns over time.
Use Fee Information to Your Advantage
Once you have a solid understanding of the fees you are paying, you can use this information to your advantage. Some of the ways that you can use the fee information to make better decisions with your investment portfolio include:
- Pick less-expensive funds: If you are paying high fees, you can switch to less-expensive funds. This means that you keep more of your money. Over a period of decades, that can make a real difference in how much you end up with. Plus, Morningstar points out that funds with lower expense ratios tend to outperform expensive funds anyway.
- Ask for more options: Now that you know how much you are paying — and what else is out there — it can make sense to ask your employer for better options. If your plan doesn’t offer what you want, ask your HR department if there is a way to expand the offerings.
- Invest in an IRA: If you can’t get better options with a 401(k), consider investing in an IRA. If it makes sense, you can even roll some of your account over to an IRA, where you can direct your investments better. If you are getting a match, contribute just enough for the match, and then invest the rest in an IRA.
You deserve information about what’s happening with your money, and now you have it. Use it to improve your retirement portfolio performance.