The Investment Scientist

How I Made a 401k 15% Larger in 15 Minutes

Posted on: November 4, 2019

4c458964d197788163d689ce046fbe26.jpgThis 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.

Buy my wealth management books on Amazon, or download the pdf version here.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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