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Advice, please: My employer moved our 401(k) program from Vanguard to Empower. The offerings are skimpy: no target date retirement funds, no life strategy funds, no balanced or all-in-one funds. Instead we can choose from 15 funds, many of them with fees higher than index funds. When I ask Empower why it tolerates this weak menu, I get variations of, “Tolerate? I didn’t know we even allowed plans this narrow.” And when I invite the employer’s managers to broaden the selection, I get no response. I’ve spread money around enough of these funds to roughly approximate a target date fund, but constantly rebalancing is impractical. So is rolling my account into, say, a choices-rich Vanguard IRA; my attorney and accountant say that leaving the 401(k) plan would squander my credit protection against liability lawsuits and other types of claims against me. Should I continue to grin and bear it? Or do I have some other course of action, preferably one that won’t take me down a deep rabbit hole of corporate do-littles and overstressed regulators?
The consensus is right. Take your money and run – or roll it over – to a reputable brokerage IRA. Leaving your money in poor investment choices simply to avoid a doomsday result in unfilled litigation verges on paranoia. And the advice to get an umbrella policy is quite sensible. GEICO operates a marketplace to get policies from third party carriers. Ain’t free, but ain’t expensive. And it solves the (potential) problem of financial loss while giving you investment freedom. If there aren’t vesting or employer match issues as discussed in the comments, this is surely a no-brainer – vote with your feet.
Just a quick comment and another way to look at the target date funds. I’m an owner of one myself as a primary investment in a 401k and I listen to a podcast recently where I learned that when you sell a portion of your target date fund to receive a distribution in retirement for example that it sells a slice of the investment such that you don’t get to select if you are selling stocks or bonds, it just sells a slice of both/a unit of the target date fund. This gives you less flexibility to sell the portion of the portfolio that you’d like to. Maybe you’d like to sell stocks that are doing well to lock in your gains there or maybe you’d like to sell bonds only. It was an interesting thought and made me consider if I should invest a bit outside of the target date funds. Maybe this is an opportunity for you to do that. Of course I’m not sure how big of an issue this is but I thought it was an interesting fact that I was not previously aware of so thought I’d share here as well. Of course do your own research in case I’ve mistaken misrepresented anything here accidentally.
But if your target date fund’s asset allocation is the same as your desired asset allocation, then selling the fund will maintain that allocation. Also the fund has been rebalancing all along, locking in your gains.
What are the lowest fee funds? Maybe there’s actually a good one.