Jonathan Foster

Hi Kurt,

Not necessarily. If the funds are all focused on similar markets / asset classes, you would be correct. In this situation, you could be doubling up on exposures, increasing tax-inefficiency, and even worse, owning funds where managers have contrary opinions and cancel each other out.

However, if your advisor has built a global portfolio and/or with exposure to multiple asset classes, a dozen funds might be very important. There are so many categories and sub-categories to choose from. Your advisor may well be developing a strategy for you that is very specifically targeted. Go to Morningstar.com and take a look at all the categories!

My advice is to sit down with your advisor and have him/her explain it to you. The one thing that is of paramount importance is that you understand and agree with the philosophy being employed on your behalf. After all, IT'S YOUR MONEY!

Best of luck.

Jon Foster

Hi Kevin,

First and foremost, you need to consult your tax advisor before making any decisions here.

Your frustration is totally understandable. 401k Plans are generally not as competitive from a cost or investment choice perspective as a self-directed IRA. Hopefully the introduction of the In-Service Distribution option will force these plans to become more competitive.

I am assuming that you are at least 59 1/2? Before that age, you cannot do a 401k In-Service Distribution to your IRA. Additionally, not all 401k plans allow this, so check with your HR department or administrator for the details. You should also make sure that you keep the company match if you do this. The most important feature of your 401k is the 4% company match!

Another important issue is how your company responds to your desire to pull money out of the plan. Some companies react quite negatively. An alternative course of action is to get involved in the process of restructuring the 401k Plan to be cheaper and better. Volunteer to sit on a committee.

FYI, if you are looking at expense ratio solutions for your IRA of only 20bps, you must be only considering super low cost ETFs & Index Funds, probably without any active management at the asset allocation or investment selection level. This puts ALL the investment burden on you, so make sure you think you are qualified to do this. Good investment advice can be worth paying for!

Jon Foster

Hi Nolan,

My best advice is to really develop your financial reporting and education for your boss. Producing solid, accurate accrual-based P&Ls and projections are important, but even more important in the start-up stage are accurate cashflow statements and projections. Managing your working capital is your most important job, as it is very possible for you to be healthy and growing on an accrual basis, and still run out of cash! In fact, fast growing, successful young businesses are often low on working capital as they need to plow so much into growth.

Of course, different businesses have different cashflow characteristics. I can't tell from your question what type of business you have, or I could opine more clearly. For example, the fashion clothing business, has terrible cashflow characteristics; long lead order time, big up front costs in manufacturing, inventory and shipping, and customers who are notoriously slow to pay. These businesses need lots of working capital or a great receivables factoring solution. If you are in a subscription-based business, you get paid up front for delivery over an extended period of time, so you tend to be cash-rich.

One final thought...DO NOT assume that your boss actually understands the difference between accrual and cash accounting! Very often, they really can't read financial statements properly, so take responsibility for presenting the facts in a manner he/she will understand. They are often too embarrassed to admit their shortcomings.

Good luck!

Jon Foster