Many use a 401(k) plan as their top tool for saving for retirement. But how can the everyday investor judge whether theirs is any good?
According to Scott Holsopple, president of Smart401k, in an article for U.S. News & World Report, these are the four criteria you can use to grade your 401(k) plan:
1. Two or three funds from each of the major asset classes are represented.
Investing across asset classes helps mitigate risk, says Holsopple. “At minimum, your plan should include funds that cover these asset classes: International stocks, small- and mid-cap stock, large-cap stocks and bonds,” he says.
2. The plan includes high-quality mutual funds.
Holsopple advises looking for the following traits in your funds: Consistent management, how it performs relative to its peers in market cycles, and whether the investment follows the fund’s stated purpose.
3. The plan offers saving and investing advice specific to you.
A good advisor, says Holsopple, will provide good, digestible advice tailored to your needs and should help answer your most important question: “How much money do I need in order to retire?”
4. Fees are reasonable.
Compare your fees with other plans to ensure they’re not exorbitant. Holsopple advises using Brightscope.com, a 401(k) rating and information site, as a resource.
What if your retirement plan doesn’t have these traits? See his suggestions on what to do next.
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