How I Made a 401k 15% Larger in 15 Minutes
Posted November 4, 2019
on:This happened over the past weekend. A reader of my newsletter signed up for my free 2nd opinion financial review.
As I went over his 401k investments, I saw that he had invested the entire balance in a target-date fund which normally is a good choice. Upon closer examination, I realized that the target-date fund has an expense ratio of 0.8%. That’s high. I went through the list of available investment options since most 401k plans limit them. I found an S&P 500 index fund, an international stock index fund, and a bond index fund, all with an expense ratio of only 0.05%. I constructed a portfolio made up of these three funds, saving him 0.75% a year. The entire exercise took me around 15 minutes.
Don’t underestimate the power of this small saving. Arithmetically, it’s 7.5% in ten years, 15% in twenty years. Most of you will live for more than 20 years. How would you like to be 15% richer when you retire?
You should do this exercise yourself with your 401k, and in fact, your entire investment portfolio. It’s a tiny time investment that can yield a life-changing result. If you don’t want to do it yourself, you can always sign up for my 2nd opinion review.
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