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The secret window in your retirement plan
- 1. The Secret Window in Your Retirement Plan
- 2. Does Your401(k) Have a Secret Window? Airlines •American Airlines •Delta Airlines •Jet Blue •NetJets •Southwest Airlines •Spirit Airlines •U.S. Airways •United Airlines Aerospace & Defense •General Dynamics •Lockheed Martin •Northrup Grumman •United Launch Alliance Energy & Energy Services •Anadarko •Duke Energy •Schlumberger •Shell Healthcare & Hospitals •Aetna •Banner Health •Kaiser Permanente •McKesson •University of Colorado Hospital •Eli Lilly •U.S. Partners Anesthesia •Unity Health •United Healthcare •Humana •Mayo Clinic Legal •American Bar Association •Holland and Hart •Montgomery Little •Otten Johnson Robinson Neff & Ragonetti •Sherman & Howard Technology & Telecom •Apple •Avaya •AT&T/Directv •Alcatel-Lucent •Cisco •Centurylink •Intel •HP •Liberty Media •Oracle Other •The State of Colorado •Jefferson County •Coorstek •EMS Management •Graebel Companies •Affinity Group •Good Sam •Western Union
- 3. What Is a Self-Directed Account Anyway? • A separate investment “window” within your 401(k) • An opportunity to diversify and broaden your investments • A means to add professional management to your retirement plan
- 4. The Average Investor UnderPerforms 20-year annualized returns by asset class (1996-2015) Source: Dalbar
- 5. Your Emotions Are a Terrible Compass
- 6. Advice MattersWithout Advice Portfolios of PeoPle Who didn’t get helP suffered from: • inAPProPriAte risk levels • mArket timing mistAkes • misunderstAnding risks And mArket volAtility With Advice Advisors cAn Add vAlue: • As effective behAviorAl coAches (uP to 1.5%) • APPlying Asset AllocAtion strAtegy (uP to 0.75%) • emPloying cost effective investments (uP to 0.45%) • mAnAging AllocAtions And rebAlAncing (uP to 0.35%) • mAnAging A sPending strAtegy Sources: Vanguard’s study based on their Alpha framework. Putting a value on your value: Quantifying Vanguard Advisor’s Alpha, Vanguard Research 2014.
- 7. The Self-Directed Brokerage Account (SDBA) How it Works Self-Directed Brokerage Account Pre-selected investment choices Including target date funds Stocks, bonds, Mutual funds, ETFs, And access to professional management Core Account Your Retirement Account All investments involve the risk of potential investment losses and no strategy can assure a profit. There are certain risks and considerations to take into account prior to investing in a target-date fund. A target-date fund; also known as a lifecycle or age-based fund; is a fund portfolio that helps investors saving for retirement choose a single portfolio aligned with the year closest to their expected retirement. It is designed to provide an asset mix that becomes more conservative as the date for expected withdrawals to begin approaches. Consider in addition to your age or date of retirement other factors, including your risk tolerance, personal circumstances, and complete financial situation. A target-date fund is not guaranteed and it is possible to lose money by investing in the fund, even after the target date has passed.
- 8. Your 401(k) Secret Weapon at Work
- 9. Who is Latitude Financial Group? • Founded by Scott Cody & Dan Grote in 2008 • We’re independent – represent clients (not products); full service; no bias • We work with all ages/we don’t have minimums • As seen in U.S. News & World Report, Reuters, Newsweek and 5280 Magazine.
- 10. Important Disclosures Registered Representatives offer securities through Securities America, Inc. Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Latitude Financial Group and the Securities America companies are unaffiliated.
Notas do Editor
- What is your secret weapon in your retirement plan? Do you have one? How do you use it? Many company retirement plans such as 401(k)s, 403(b)s and 457 plans offer you the ability to invest your money in what is commonly referred to as a “Self Directed Brokerage Account”. In this presentation, we will introduce you to this powerful opportunity and share with you how you can do it with professional advice.
- Whether or not your company offers this option is uncertain and chances are your company’s human resources department and other plan literature doesn’t offer much information about it. The reason: the company who hosts your 401(k) plan is often not the company who handles the self-directed brokerage account. Therefore, when participants opt to allocate assets to the brokerage window, the core plan’s custodian loses out on the fees they earn on those dollars. But that should not be a reason not to use it. If you work for a large employer, there is a strong possibility that your plan may offer a self-directed brokerage account. Even if your company isn’t a large company or one with a recognizable name like some of these, you should inquire with your human resources to see if you might have one available.
- Self-directed brokerage accounts are a great way to diversify your retirement account and gain access to stocks, bonds, mutual funds, exchange traded funds, and even add your financial advisor to your account for oversight and personalized service.
- What’s so good about professional management you ask? Look at how poorly the average investor has done against the market? The average investor even underperforms inflation. Against the market, they underperformed by 74% for a 20-year period. Why would this be?
- Our emotions may be at the heart of the problem. Since 1995 to the end of 2015, one-hundred thousand dollars invested in the stock market would have grown to over four-hundred fifty thousand dollars. But not over-night and certainly not without a lot of ups and downs. The cycle of human emotions when it comes to investing has us making irrational decisions during good times and bad. We tend to be cautious when the market is recovering from a downturn only becoming confident when the market is nearing its peak. Once it has taken a down turn we cycle from surprise to panic-stricken and unfortunately make ill-fated decisions because of these emotional swings.
- Evidence suggests that advice can make all the difference. A 2014 study conducted by Vanguard Investments suggests that an advisors help as a behavioral coach can add approximately 1.5 percent return to the bottom line. Add their help applying asset allocation strategies, employing cost effective investments, managing allocations on an ongoing basis and helping you to manage your spending strategies can add an additional two and a quarter percent of return to that getting you an additional three and three quarters percent year-in and year-out. Obviously, there’s no guarantee of that but can they add enough return to pay for their cost of one or one and a half percent? It would seem so.
- So how does all this work? It’s actually quite simple. Assuming your retirement plan offers a self-directed brokerage account, consider that your account has two separate parts. The main part or what we’ll refer to as the core account consists of a pre-selected group of mutual funds and probably offers some target-retirement date funds like the twenty-twenty fund or the twenty-forty fund. The dollars you contribute to your plan go to this “core account” as do any company match or profit sharing dollars. The other part of your plan is the self-directed brokerage account. This side of your account may be handled by a separate custodian than the core account. It may be Fidelity, Charles Schwab or TD Ameritrade handling the self-directed account. This account has almost a limitless list of investment options perhaps including individual company stocks, bonds, mutual funds, exchange traded funds, and the list goes on. The first step will be to open this account which can usually be done directly from your retirement plan website. Once this account is open, it will appear as a fund option if you were to reallocate your investments which is how you move money between the two sides. If you plan to have your advisor added to your plan, they will probably have some paperwork for you to complete that will allow them to act as a limited power of attorney for the purposes of directing the dollars you choose to invest in the self-directed brokerage account. They’ll likely need the account number for the new account in order to link to it for their management. Once they have done so, you’ll need to finalize it by making a transfer or reallocation of your core 401(k) dollars allocating some portion to the self-directed brokerage account. Once that is processed, your advisor will be able to manage these dollars according to your wishes and will be able to monitor and report to you your progress.
- After this has been established, you may want to periodically transfer additional dollars from the core 401(k) account to the self-directed 401(k) to bring those new dollars under your advisors management. Every company has different rules regarding how much of your plan you can allocate to the self-directed plan. You will continue to receive your statements on your plan as you always had received them and they will likely show you your full 401(k) value allocated across the fund choices selected including the SDBA. In addition to these statements you will likely begin receiving separate statements that detail just the SDBA dollars and your advisor should be able to oversee and provide you with updates on your account in your periodic account review meetings.
- Latitude Financial Group is an independent financial planning firm founded by Dan Grote and Scott Cody in 2008. Both Dan and Scott carry respected credentials and have combined more than 30 years of experience in financial planning and wealth management. Latitude is not affiliated with an insurance or investment company. They represent clients, not products and offer a full-service financial planning experience. Latitude Financial Group does not have investment minimums, they work with clients of all ages and have been in U.S. News & World Report, Reuters, Newsweek and 5280 Magazines just to name a few.