Easy ways to give your 401(k) a tune-up

As it stands right now, there is just over $4 trillion in 401(k) plans. That's trillion with a capital “T.” If you're working for a company, then you're probably one of the 67 million Americans who have a 401(k). It was included as one of those perk benefits that got you even more excited about the position.

The only problem is that your job probably didn't offer you any guidance beyond the lovely welcome packet you received during your orientation. I envision the conversation went a little something like this:

Your employer: “Congratulations, you now have a 401(k).”

You: “Great! Now what?”

Your employer: “You choose your own investments. Good luck!”

You: “Uhh… I don't know how to do that.”

Your employer: “Sorry, we can't give recommendations.”

You: “What the…?”

I hear some variation of the above conversation all the time. The reasons employers started offering 401(k) plans is because they didn't want to have to be on the hook with the old-school pensions that your parents or grandparents had.

The 401(k) allows them to put the responsibility into the employees' hands — that's you — to determine their retirement fate. How does that make you feel? If you're a little uneasy, you should be.

Why exactly? Look at this way: At some point in time your 401(k) will probably be the largest asset you own — even bigger than your house. The BIG fundamental difference between the two is that the 401(k) will be your income source at retirement. You can't draw an income from your house, the last time I checked.

If your 401(k) will one day be the single largest asset you own, I would then expect that you would want to spend countless hours researching your 401(k) options making sure you know exactly where your paycheck is going each month, right?

Right?

Exactly.

Face it. People would rather spend the night camping out in front of Best Buy in sub-freezing weather on Black Friday to get a $100 discount off of a television than to spend an hour a year researching their 401(k). It's a sad truth.

Today, I want to share with you some free tools that you can use to quickly have a better understanding of your 401(k) and how you might improve it.

BrightScope

BrightScope

If you are looking for a way to see how your company's 401(k)K stacks up to the others in the industry, look no further than BrightScope. BrightScope offers a way to search for your companies 401(k) and compare it to other companies in the same industry.

It will grade your 401(k) on a scale in different categories such as total plan costs, company generosity and investment menu quality.

Here is an example of a Lowes' Companies, Inc. 401(k):

Brightscope Lowe's Companies, Inc. 401k Rating by BrightScope 1

Brightscope Lowe's Companies, Inc. 401k Rating by BrightScope 2

This BrightScope score shows that it is in the top 15 percent of plans for total plan cost. It will also show you how much more you could save with a plan that costs less.

In the Plan Component section, BrightScope shows you how this plan ranks compared with other plans in the same peer group. This will show you how good your company's 401(k) design and performance are.

Brightscope Lowe's plan components

You can also see how much you are paying in fees with your current investment selections. If you hit the Personal Fee Report button, you will be taken to a separate page where you will insert your age, annual salary and your annual contributions to the plan.

From here you can add all of the investment options you have currently selected in your 401(k). This will allow you to see how much your are paying in fees, as well as how much you can expect to save until you reach retirement.

Lowe's Fee Report

The BrightScope rating calculates how quickly a given plan can get an average participant to their retirement goal line. While the strength of the investment menu is certainly impactful in terms of the calculation of a plan's BrightScope rating, the rating is a result of many different data points and plan characteristics, such as match structure, company generosity and the fees paid from plan assets.

When participants perform research on their 401(k) plan on BrightScope, many are disappointed to see that their plan pales in comparison to other plans in their employer's peer group (peer group is determined by comparing plans of similar participant count, asset size, and industry) and immediately assume that a poor investment menu is the only cause. In many cases, the plan's BrightScope rating is affected just as much by a poor company generosity score or the fees paid out of plan assets as the investment menu quality rating.

In the past, plan participants have felt “stuck” with their current 401(k) fund lineups, and we have seen the BrightScope rating become an important catalyst for change. Participants can use the BrightScope rating for their plan as a conversation starter with their employer and, in many cases, it has led to significant improvements in the plan's design and cost.

That being said, in some cases, a plan's limited fund menu and excessive fees may mean that a participant can find improved retirement outcomes by investing outside of their 401(k).

BrightScope has a pretty large database, but if you work for a smaller outfit, then it probably won't do you much good.

Now that you have some idea on how your 401(k) compares, let's take a look at how you can make sense of your investment options.

Morningstar

Morningstar

Another tool you can use to help you manage your investments or 401(k) is Morningstar.com. Morningstar has a several helpful tools for managing your investment portfolio. Many of them are free, but some require you to be a member. Premium membership is not cheap at $195 a year. Here is a list of the free tools that Morningstar has to offer.

Portfolio Manager

Portfolio Manager allows you to track, rebalance and analyze your portfolio. You can enter your investments and track them throughout the day. The Portfolio Manager has a performance tracker, which will show you your portfolio's performance on a month-to-month basis.

Morningstar Portfolio Manager

It also allows you to see your gain or loss on each investment. This is a great tool to see the performance of your portfolio broken down into individual investments. This can help you determine if a certain investment is the right fit for your portfolio.

Morningstar also has a news and opinion section in the Portfolio Manager. This will give you the latest news regarding each investment in your portfolio.

Morningstar Gain Loss

Morningstar Performance

You can also set alerts for investments you are watching to allow you to pick the perfect timing to get in or out of the market.

If you're extremely analytical, then you'll absolutely love Morningstar. If you get anxiety with pie charts, bar graphs, and a lot of data, then it will be very overwhelming.

Portfolio Monkey

Portfolio Monkey

Bound and determined to find another option that was 1. free and 2. easy to use, I hit the web searching for the Holy Grail. I made have found it with Portfolio Monkey.

According to their site:

“Portfolio Monkey is a social venture whose mission is to educate and provide self-directed investors the most simple-to-use and sophisticated investment portfolio management tools available.”

Portfolio Monkey has designed this site to help you analyze and better allocate your portfolio. They allow you to enter in your current or desired portfolio to see how well everything flows together.

This example portfolio shows you the expected return and volatility of each holding in your portfolio. This will better enable you to find funds that you want to keep or funds that you want to get rid of in your portfolio.

Portfolio Monkey 1

Each portfolio you enter is given a Portfolio Monkey score. They will also show you what your portfolio's expected return, volatility and efficiency ratio are.

It will give you a dollar figure on what your portfolio stands to gain or lose by taking the standard deviation of your portfolio.

Portfolio Monkey 2

Portfolio Monkey also has an Optimizer tool. This tool will try to optimize your portfolio, compared to the buy-and-hold strategy, by giving you different weights in your holdings.

They try to optimize your portfolio by giving you a higher expected return and a lower volatility. The tool will give you a dollar figure of what it would mean if you optimized your portfolio.

Portfolio Monkey 3

Portfolio Monkey 4

Overall, I was very impressed in with what Portfolio Monkey had to offer. For a novice investor, it is very easy to use and can help with your 401(k) and any other investments, for that matter. For more, you can check out an in depth review of Portfolio Monkey on my blog.

Not a do-it-yourselfer? No problem

While their are plenty of free options out there to help out with your 401(k), I understand that we're all busy. I can hear it now, “Jeff, I just don't have the time to review my 401(k) consistently.” Instead of chastising you, I'll just give you another option. This option, though, has a cost.

The other option you have is to hire a fee-only planner who will either charge you a flat fee or an hourly rate to assist in your 401(k) options. This planner should have a good understanding of your goals, how aggressive/conservative you are, and resources to review your investment options.

Before hiring this adviser, make sure you have a clear understanding of how much you are paying and what you are getting in return. For this kind of relationship, one way to ensure you're in good hands is to use a NAPFA fee-only financial adviser or at least one who is a Certified Financial Planner.

Get your 401(k) reviewed

With all the tools available to you, self-directed investing has never been easier. You have no excuse not to have a good understanding of what's going on in your 401(k).

More about...Investing, Retirement

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
34 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Adam
Adam
7 years ago

For a hands-off approach outside of the 401(k), take a look at Betterment (betterment.com). It’s a pre-configured investment tool that uses a mix of index funds. You tell it your goal and your time frame, and it handles everything from there. It also requires monthly contributions.

Jeff Rose
Jeff Rose
7 years ago
Reply to  Adam

@ Adam I really like what Betterment has been up to for the past couple of years. Their platform is really slick and super easy to use.

Mark W
Mark W
6 years ago
Reply to  Adam

I’m a huge fan of betterment. Would love to see a similar service but not for the ‘hands-off’ approach – I’m a DIY investor who can’t imagine letting anyone else manage my portfolio. In terms of the user-experience and how easy it is to use, I envy these ‘lazier’ investors who can take advantage of it (no offence)!

Debi
Debi
7 years ago

I’ve used Bright Scope before and the list of funds available in my plan is out of date. When I try to add a fund I get error messages. Does anyone else have this problem?

Dean
Dean
7 years ago
Reply to  Debi

Yes, Debi, I get the exact same thing when I try to enter in the names of the funds I am actually invested in my 401(k).

nicoleandmaggie
nicoleandmaggie
7 years ago

Another option is to take the lowest fee target-date fund that is offered. (That’s Vanguard if Vanguard is one of your options.) Pick a retirement date and it will take care of the rest.

No need for constant surveillance. No reason to get overwhelmed or confused. No need for a fee-only financial planner. You match the market based on age-appropriate risk and automatically re-balance at low cost.

Jeff Rose
Jeff Rose
7 years ago

@nicoleandmaggie I actually thinks that’s a dangerous idea. You can probably get away with that on a Vanguard target-date fund, but the most of other target date funds I’ve seen are pure crap. They have high fees and, to make it worse, the funds included are sub-par. I dislike them so much I was compelled to write this: http://www.goodfinancialcents.com/target-date-mutual-funds-not-good-choice/ Most of my clients that have these crap target-date funds, I work with them and choose individual funds (think A la carte) to weed out some of the bad funds that are included in the target date fund. Obviously, depends on… Read more »

Ramblin' Ma'am
Ramblin' Ma'am
7 years ago
Reply to  Jeff Rose

Yeah, my company uses Fidelity for its 401(k) and I’ve avoided the target date funds for that reason. I’ve heard Vanguard’s are good, so I may use them for a Roth.

Mrs PoP @ Planting Our Pennies
Mrs PoP @ Planting Our Pennies
7 years ago
Reply to  Jeff Rose

Agree… According to this, Fidelity’s 2045 Target Fund is currently holding 12.3% in cash.
https://www.google.com/finance?q=fidelity+2045&hl=en&ei=RRzoUdipLqL8lgOnvAE

Seems a tad on the conservative side for a fund where retirement is still 32 years away…

Mrs PoP @ Planting Our Pennies
Mrs PoP @ Planting Our Pennies
7 years ago

That said, I love Vanguard’s 2045 fund and we own a bunch of it in our Roth IRAs.
https://www.google.com/finance?q=vtivx&hl=en&ei=WB7oUdDKFoi0lgOTwAE

Ely
Ely
7 years ago

This is my favorite answer. (Yes I have a Vanguard target-date fund in my IRA.)

However, some target-date funds – like the ones in my employer’s plan – are expensive. Instead, I spread my 401k money among various index funds – they’re cheap – with the plan to dial back my risk exposure in the next 5-10 years. No constant vigilance, detailed research, or hiring help required.

eta Basically I did what Jeff said above – I took what I liked about the Vanguard fund and duplicated it inside my employer’s plan as best I could.

Alea
Alea
7 years ago
Reply to  Ely

You are lucky to have an index fund as an option, I would jump on an opportunity like that in a second. No such luck at my job.

800Finance
800Finance
7 years ago
Reply to  Alea

I second this. A lot of places don’t have any kind of benefits. It’s great that you have these options.

John S @ Frugal Rules
John S @ Frugal Rules
7 years ago

I’ve heard of BrightScope before, but did not know who exactly it worked. It sounds like a nice tool to help individuals better grasp their 401k plan. If it can be an impetus for employees to push for changes to terrible 401k plans, then it’s a winner in my book. I’ve used the Morningstar tool extensively in the past and would highly recommend.

Jeff Rose
Jeff Rose
7 years ago

@ John Brightscope is trying to do a good thing with their research. It’s only ineffective for all the smaller 401k plans out there.

Morningstar is pretty awesome especially for those that are analytically inclined. Packed full of data!

Courtney B.
Courtney B.
7 years ago

Is this advice the same for those of us with a 403b? How do these two types of plan differ?

Jeff Rose
Jeff Rose
7 years ago
Reply to  Courtney B.

It can be. 403b’s are usually offered by non-profit companies or state government organizations. Because of that, I don’t think Brightscope would work.

Morningstar and Portfolio Monkey should work. The only potential downside depends on your 403b.

I’ve seen a lot of 403b’s go from offering mutual funds to now offering annuity products with much more limited options. Some that I’ve seen are 10x worse that the horrible 401k’s I’ve seen.

Karen
Karen
7 years ago
Reply to  Jeff Rose

My 403(b) is horrid. It’s with Franklin Templeton, and every fund charges a 5.75% sales fee, plus a front load. I’m in the target date fund for 2045 and it’s been completely stagnant. But I don’t know what to do about it, so I just don’t contribute to it; instead I focus on putting my extra cash into my IRA. (My company automatically puts in 10% of my pay into the 403b, without me contributing a dime, so I guess I can’t complain too much. Still, I’d like that fund to actually DO something, you know?)

SavvyFinancialLatina
SavvyFinancialLatina
7 years ago

I went and checked my company’s score on Brightscope. Turns out my company has a pretty high rating (83). Pretty cool!

Jeff Rose
Jeff Rose
7 years ago

Woo-hoo!

Mrs PoP @ Planting Our Pennies
Mrs PoP @ Planting Our Pennies
7 years ago

I just checked Mr PoP’s 401K (mine’s not big enough to be rated), and his company got an 83 too! Not too shabby =)

David Vega
David Vega
7 years ago

So much great information for a young investor. Thanks for this article!

Jeff Rose
Jeff Rose
7 years ago
Reply to  David Vega

Your welcome!

Matt @ Your Living Body
Matt @ Your Living Body
7 years ago

I decided NOT to go with my company’s 401(k) because it was too generic. There weren’t really too many fund options. Actually, I don’t get a 401(k), I get a 403(b) because I work for a hospital. But either way the funds were very generic. They gave me an option of linking a brokerage account to the 403(b) to have more options but I already have a brokerage account so I decided against that. Not only that but my company doesn’t match for a 403(b). So, I just focus on my roth IRA instead. I have more options and access… Read more »

Jeff Rose
Jeff Rose
7 years ago

@Matt Good move on your part.

I’m advised a couple of clients to do the same for the exact same reason.

Matt Becker
Matt Becker
7 years ago

These are definitely good tools. I would also recommend seeking out advice from some of the great communities online. One example is http://www.bogleheads.org/forum. You can post your current investments along with all of your options and the associated costs, and you’ll get a ton of really smart people willing to help you out. I don’t think this is a substitute for doing your own research, but it’s a great way to get some additional input without any cost to you.

Graham
Graham
7 years ago

$4 Trillion sure is a lot of money. But the scary thing is that if you take that dollar amount and divide it by the 230 Million US citizens over age 20, that equates to roughly $17,391 per person. That’s not bad for a 20-30 year old, but if you’re retiring…yikes! Come on America, everyone step up your retirement fund! Don’t rely on someone else paying for your retirement because it probably won’t be there when it’s your turn to retire.

Jeff Rose
Jeff Rose
7 years ago
Reply to  Graham

Sad isn’t it. Unfortunately I see it all the time. People wanting to retire but literally don’t have a penny to their name.

Graham
Graham
7 years ago
Reply to  Jeff Rose

I’m 25 and have maybe $20k in a 401(k). It’s nothing crazy, but I save as much as my budget allows me. I ask my friends how much they’ve saved for retirement so far, and I get an overwhelming response of, “wow, you’re starting early” implying they haven’t even thought about retirement yet. I then ask why they don’t start saving and then hear them say, “well, I want to spend my money when I still can” or “I have plenty of time to start.” I understand that logic to a minute degree, but they have absolutely no idea about… Read more »

Monica @MonicaOnMoney
Monica @MonicaOnMoney
7 years ago

Very comprehensive blog. When I started my 401k, I had no idea what mutual funds to choose. How often should we review it?

Jeff Rose
Jeff Rose
7 years ago

@ Monica

At minimum, review your 401k once a year. If your employer changes 401k plans (which seems to happen quite frequently for a lot of people), then definitely review your new options and don’t just accept the default funds that you’ll be automatically switched into.

Doug
Doug
7 years ago

Thanks for the tools! I agree that a 401k is so important yet so few know how to invest and leverage it to max out the benefit. I also wanted to plug a service I have used called Smart 401k. They are affiliated with The Mutual Fund Store. It is not free but I think the fee is worth the money as they give you an individual investment plan based on your risk assesment and investment options. Also, they update every Qtr. If you feel uncomfortable making your own decisions this service provides a great service in my opinion. I… Read more »

David Bressler
David Bressler
7 years ago

And, I’ll add… if you have the opportunity to rollover a 401K into an IRA and want some help taking advantage of the opportunity to do so, please have a look at ElephantsPaycheck.com for our free 10-part email course guiding you through setting up a portfolio of dividend aristocrats and reinvesting dividends so that you can focus more on the income you’re receiving, and invest in a way that helps you to retire.

db

imnotyetdead
imnotyetdead
7 years ago

Morningstar has been a great help to me in learning about investing and choosing good options. I hadn’t heard about these other tools, so it’s good to know.

shares