RE: Junk bond funds (corporate bonds) in your 401K.
Sheesh! This is yet another example of why I say that if you're a disciplined trader/investor working with a reliable trading/investing system, most workplace retirement plans will make you feel like an advanced swimmer being told you have to use the baby pool!
Have you spoken to any of your fellow plan participants about this? If there's more than one of you who'd like access to Fidelity's BrokerageLink feature, which is available in 401(k) plans at several other companies that use Fidelity as their record-keeper, you might get more traction. Even if it's just you, I would try finding an ally in HR. Oftentimes, the head of HR is instrumental in a company's decision-making process regarding its 401(k). If the user agreement for BrokerageLink requires you to agree that your employer has no liability for any poor choices you make with your money inside the brokerage account (and I can't imagine it wouldn't), then that would be a boon for your employer, because it would lighten their burden as a fiduciary of the money held inside the 401(k). (I'm told that's the primary motivation for employers to allow their employees to open a brokerage account inside the company's 401(k)). If you can convince someone in HR that this move would reduce the company's liability while also making the employees happy, they might be motivated to escalate it up to someone with enough influence to make it happen.
Northrop Grumman is one prominent example of a company that uses Fidelity as the recordkeeper for its 401(k) and allows plan participants to open a BrokerageLink account.
Ha ha yes I even used the fiduciary card on them to see if i could at least make them nervous. Unfortunately in this case that piece of legislation was set aside, so they can go back to ignoring me. Good idea on finding and ally in HR.
There is a piece of me that thinks they are not wrong and that even I could do damage to myself. I cant ignore my 401K because it is my largest most concentrated asset and it has to perform. In this case subject to a bunch of rules and restrictions. Motor racing could be faster, but its the rules that make it fun :) and somewhat safe. :)
Hi @whitesj40. I thought you might find the following article of interest: https://www.thewealthadvisor.com/article/fidelity-sued-over-management-employees-401k-plan.
I think we are wearing out this reply mechanism! I cant even find the comments now :). The article was great and very ironic. However I will say that I am the benefactor of the type of trust funds they are eluding to. They are cheaper for sure but very opaque. Trade off..
True, but you come across as someone who has the knowledge and discipline to impose rules on yourself that give you more flexibility while still keeping you from royally screwing yourself. (Of course, that's just my impression. You know yourself better than I do.)
By the way, are you contributing to your 401(k) on the pretax side, the Roth side, or a combination of both? I ask because whenever I hear someone say that their highest concentration of long-term funds is in a 401(k), it worries me because of the RMD hell that awaits them later in life. But Roth contributions to that 401(k) can mitigate the effects of the RMD dynamic.
ROTH only. I changed to 100% ROTH a few years back as soon as I realized it had become an option. I also only contribute the amount required to maximize the company match. There are better tax protected investment structures than a 401. You eluded to one in fact the Universal Life policy. I use that with a strategy called infinite banking and it has been a real winner.
Smart moves, @whitesj40! Making just Roth contributions, contributing just enough to max out the company match, and utilizing other tax-free strategies. By the way, what type of universal life do you have? Fixed, indexed, or variable? My understanding of Infinite Banking (as a specific system) is that it calls for the use of participating whole-life policies (whole-life policies from a mutual insurance company that pays dividends to policy-holders) rather than any type of universal life. Or are you just using "infinite banking" to refer to the general concept of using permanent life insurance to build tax-free wealth and a source of funds to borrow money from under much more favorable terms than other types of loan?
Indexed Universal life. Not whole life. Infinite banking can be structured either way but it grows faster earlier on using Universal life. Later it becomes more expensive but by then its big enough to carry the increased expenses and still grow strongly.
Yes, the level premiums of whole life make those policies more expensive in the early years, while the fact that universal life gets more expensive later on means you'll want to max out your contributions in the early years. Some folks prefer whole life for its predictability, while others prefer universal life for its flexibility and the chance to amass a larger cash value. The way I see it, it comes down to knowing what you want and what you're comfortable with.
I do like IULs. Out of curiosity, who's the insurance company behind your IUL? And what type of indexed account are you investing in? One that's tied to a single index like the S&P 500, or one that's tied to multiple indices?
Life Insurance of SouthWest National Life Group. I am using S&P500 index but you can change to whatever you want (Fixed, S&P Indexed or MSCI Index) S&P has done just fine :).
Yes, every IUL I've seen offers at minimum a fixed account and an S&P 500-indexed account, and most people I know who invest in the latter type of account have been happy with it. Some IULs offer a more convoluted type of indexed account that, each month, compares the results of three different indices (like S&P 500, EuroStoxx 50, & Hang Seng) over the preceding 12 months and credits you a weighted average of the three (weighted based on how each index performed over the look-back period). But that means less transparency than a simple S&P 500-indexed account, and some people don't like that.