So I'm currently 33 and though my investments seem to be on the right track I am wondering at what point I should combine my larger 401k with the smaller one I currently am adding funds to. My current employer matches about 3% on top of my 12% I am sinking into a Fidelity 401k and my Personal Rate of Return from 01/14 - 05/14 is at 2.28%. My older much larger 401k is with T.Rowe Price and its 3month/YTD/and 1Year results are as follows: 4.11% (3m), 1.44% (YTD), and 17.04% (1year). It's really hard for me to consider closing the T.Rowe one when I haven't put a drop in it since May 2012 and it has increased on its own about 40%. Additionally I am looking to invest an additional 10-20k that is making next to nada in my savings. I'd prefer an invest n forget option as opposed to something like eTrade, since my time is limited. Am I at the point in my financial life were I need to hire an adviser?
First of all congratulations on getting started early investing for your retirement. I believe it is important for everyone to seek guidance from an experienced financial advisor in order to make sure your investments are properly positioned to meet your goals given the ever changing economic climate. The other advisors have made some good points. The advantage of consolidation is to reduce fees and allow you to manage your investments in one place. Be sure to maximize your contributions in your current plan (2014 limit is $17,500) to take advantage of your employer’s match otherwise you are leaving money on the table. You might also consider contributing to a IRA or Roth IRA with the additional monies you want to invest as this would provide you with an alternative to low interest savings account. Consult with an experience, fee only advisor and tax professional to help you make the right investment decisions. You may contact our office if you would like to discuss your financial position in greater detail.
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Good job saving aggressively! I echo what Larry says - it isn't that the older account is "better" - and the returns are not due to any magic at T Rowe Price (although they are a fine shop). The returns are due to the fact that the money in that account was invested heavily in stocks in 2013, which happened to be a record year for stock investments. If you had most of your money in the stock investment options in your Fidelity account, you would have done just as well. The primary reason to consolidate is for simplicity and ease of management. It is harder to keep on top of multiple accounts. As Larry points out - investments that appreciate rapidly in up markets will often fall rapidly when the market falls. But you are young, so when that happens (and it is WHEN, not IF) remember there is no need to panic. Just keep investing, keep contributing, and pay no attention to the ups and downs.
Brett, Most of the other advisors have done a fine job addressing the performance issues between the Price 401k and the Fidelity 401k.
Personally, I would keep the old 401k exactly where it is - not for performance or fees, but because of the additional flexibility that it offers you.
You see - you can withdraw from that 401k - without the normal 10% early withdrawal fee - as early as age 55, since you are no longer employed at that company. This gives you an additional 4 and 1/2 years of planning flexibility, in the event that you are disabled laid off... or you merely want to retire "early."
The 401k plans are required to allow this early withdrawal if you have departed service from that employer. Here is a link to the IRS guide to the plan sponsors:
Jon Castle PARAGON Wealth Strategies, LLC Jacksonville, FL http://www.WealthGuards.com
Brett, you have options, and there is justification for whichever option you choose.
If you keep your T. Rowe account, you will have those investment choices available. True, as being separated from service, you can take withdrawals at age 55. But, as you appear to be a good saver and fiscally responsible, I would not be too concerned about what might or might not be your situation 20+ years from now.
If you roll the T Rowe account into Fidelity, you will have the ease of having only one account to manage. For some, having to look at one less statement is a huge relief. For you, because you are taking an interest, it may not be any less of a burden. You might, in fact, prefer to manage 2 different accounts. A third option is to roll your T Rowe account into a rollover IRA. The advantage of this, is that you have a much larger universe of investment options, and that your fees may be lower. To determine what your actual fees are on both of your 401(k)’s, go to your respective 401(k) portals and download their 404(a) Fee Disclosure Document. With the information that I have, this appears to be the option you may want to spend more time investigating.
The returns that you mentioned do not mean very much to me, because it does not indicate anything about your investment style, risk tolerances, what is was invested in, or anything about you. I believe, in general, if you invest is similar asset allocations in both Fidelity and T Rowe Price, you should expect to get similar returns. Just as an exercise, if you look at a similar investment choice within your Fidelity universe to match your T Rowe investment, how did it perform over the same time period?
I think it is time for you to consult with a financial advisor in your area, preferably a CFP®. If you need to, seek referrals from from trusted friends, neighbors, co-workers. I encourage you to take an interest in different types of investments and how they perform in different economic environments. Pay attention to the talking heads on the financial channels; don’t just follow one as gospel, but take in various sources of information and develop your own investment style. This way, when you consult with a financial advisor, you will have the knowledge to form an opinion as to whether he/she has a connection to you.
I am sure you are busy absorbing all this information so I will keep this brief. I 100% belief you should seek an advisor. Utilizing financial advice historically yields 3% more on your investment after fees. As far as what kind of advisor, make sure he is some one that can work with all your accounts, including your current 401(k). And be sure he would not move your money out of that current plan. The matching and vesting schedule at your current employer cannot be matched outside of your account (25% bonus, vesting, and tax advantages). Not all advisors have the capability to work with a 401(K) at a current company while leaving it there. Also, you need to check to make sure your company has the ability to get outside advice (called a brokerage window). You can look that up on this website or have an advisor look it up as well. If not, it is a fairly straightforward process to add that to your plan. The reason this is important is that it is important that your advisor build a comprehensive plan for and can help you with all your financial needs (all retirement accounts, insurance, estate planning, mortgages, etc.). It is best to have all this information available from one place. As far as fee vs. commission, that should not worry you (by the way I do both). Rather, is the advisor independent of a large firm, and is he or she objective.
If your current 401(k) with Fidelity offers a good range of investment options, then consolidating into it makes good sense.
While investment expenses do matter, the difference in performance you experience between Fidelity and T. Rowe Price will have very little to do with the company sponsoring the investment options. Rather, it will have everything to do with how your portfolios are allocated to different asset categories and how those categories perform over a particular time period.
Be aware that assets that rapidly increase in price--like the 40% increase in your T. Rowe Price 401(k)--can drop just as rapidly, especially if the underlying fundamentals don't support such elevated prices.
On your question about hiring a financial adviser . . . a good financial adviser will help you with far more than just investment matters. Genuine financial planning involves investment, retirement, taxation, estate matters, risk management through insurance, and cash/debt management. If you could benefit from guidance in those areas (and many people can), then yes, hiring a financial adviser for at least a financial review may be helpful to you at this stage.
Hope that helps. All the best.
I would not get caught up on short term returns. You can usually build similar portfolios within most 401ks. Or at least get access to a decent target date fund.
What can be drastically different is the fees you pay. Often you can hire an advisor and pay nearly the same you are already paying inside the 401k. Usually, you can roll your 401k into an IRA and substantially increase your investment universe while also having a professional work directly with you for about the same cost.
The time to hire an advisor is yesterday. It depends somewhat on your asset level, but it sounds like you probably have a large enough balance in your old 401k to get a decent advisor. As soon as you can find a non-commission advisor that will work with someone at your asset level you should. A good advisor is the "invest it and forget it" option you describe. An advisor will do all the things needed you don't have time for (investing, monitoring, rebalancing, trading, etc) as well as provide an actual financial plan. No one ever saves money by doing it themselves. It has nothing to do with someone's intellectual ability to understand investments and everything to do with their inability to monitor their financial life on a daily basis and keep from being swayed by their emotions because it is their own money. An qualified, objective, third party whose job is to manage your investments and financial life is worth far, far more than the nominal fee they charge.
Hi - Reasons to consolidate: so you don't forget about the account and have to track it down 10 years from now, your former company can move to a new vendor and transfer your investments without your permission, and you might be charged additional account fees since you aren't employed there any longer (instead of the employer picking up the tab).
Reasons not to consolidate: fees (usually lower in a group 401k but not always), more investment options to choose from, more flexibility in when you can withdraw it, more control over the account.
Reasons to consider rolling to an IRA: see above (careful with fees) and you want investment options that aren't available in the plan.
What they said about performance above is correct: time periods are different, so it's hard to judge which actually did "better." Instead of would worrying about that part, set yourself up for the future with investment options that meet your risk criteria going forward.
In working with my clientele this topic often comes up. Some things to keep in mind... 1) If you leave it with your former employer you unfortunately are not kept abreast of any changes to the funds, legal issues, etc. Also, there is generally no education from the provider's end for someone that is in PRA status so you are completely on your own. 2) One major worry of moving it into your current company's plan and consolidating is that now when a specific investment goes down sharply you have more coins in the game so to speak. You are also limited to the fund choices in the 401(k) plan which may not make sense to put additional assets in that don't get a match. 3) By opening up an IRA and moving the money from the previous employer you now have full control on this asset. You'll have a dedicated representative assisting you, and options that aren't available in a group retirement plan are now at your fingertips. You may pay higher fees, but generally I've found folks enjoy a healthier investment when going the IRA route. Depending on your personal preferences you may want to look into investing into an IRA within a variable annuity. Some perks you may receive from doing this are locking in your current asset and protecting it from potential market exposure, guaranteed lifetime income stream (think of a personalized pension), and depending on the provider there is usually a nice guaranteed step-up in place to raise that lifetime payout. In most contracts these days you still have 100% control on your asset even after electing the income option and the only drawbacks are a bit higher fees and a surrender penalty period usually between 7-10 years. This generally is a non-issue since the money is being saved for retirement purposes anyway and you may elect 10% per year penalty free.
Hope this helps! Travis