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Choosing your own investments in your 401(k)

Print | Comments () Posted by Cheryl Costa May 31, 2012 09:25 AM

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If you work for a company that offers a 401(k), you were probably given a list of investment options when you decided to participate in the plan. If the plan is a good one, your investment options should include a wide range of funds -- large cap funds, small cap funds, value funds, growth funds, international funds, real estate, and bond funds with short durations, long durations and the ability to invest in high yield. And, if you are really lucky, you have access to funds with very low expenses.

Unfortunately, for far too many plan participants, the investment choices are very limited and the fees built into the funds are quite high. If you find yourself in one of those plans, you should ask the plan administrator if a "self-directed" option is available. With a self-directed brokerage option, the plan participant is free to invest the money in the plan virtually any way they want -- just like they can in their Individual Retirement Accounts (IRAs).

According to the Plan Sponsor Council of America, about 20 percent of plans offer this option. If you've never heard about the availability of this option, it doesn't mean you don't have it. Many plans that offer the option don't advertise it very widely or when they do, participants are unfamiliar with the terminology so they don't know that they have the option to choose the investments themselves. If this is something that you are interested in, you should ask the plan administrator directly.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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About the contributors

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a principal at Forteris Wealth Management which is an independent, fee-only firm with offices in Framingham and Purchase, NY. She advises clients on investing, education funding, taxes and retirement planning. She has a BS from Worcester Polytechnic Institute and an MBA from Boston University and she is a Certified Financial Planner.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.