Now that I decided to roll my 401k into a traditional IRA, the next step is to figure out the company that I should roll the money into. As the funds will likely remain in the same place until I’m past 60 years old, it is a decision that I should carefully analyze. I managed to narrow the choices into three and here are some pros and cons of each.
As many of you know, I’m a customer of E*Trade Financial. Currently, I have a brokerage account, Roth IRA as well as an online savings account with them. Adding the traditional IRA account is only natural and it will also allow me to see all my investments in one screen, cutting down on administration.
On the other hand, E*Trade’s big loan portfolio and the current mortgage crisis could possibly (amid a very small chance) mean disaster for the brokerage firm one day. If I look at the situation on a strict risk analysis basis, I should open an account elsewhere. (Note that I know about being able to recoup the money through insurance and protection but why put yourself through trying to get back 5 different accounts equaling your life savings all at the same time?)
Vanguard index funds are the most popular way of index investing. By going to a reputable name like Vanguard for my traditional 401k, I cannot really go wrong. I don’t have much experience with them but I’m extremely confident that I will be happy with their service (the low fee index funds also doesn’t hurt).
My concern with putting my 401k into a Vanguard index fund is that I may not be maximizing my potential reward by being too conservative. In general, index funds are a pretty safe way to capture gains from a long term upward movement in the stock market. Since my 401k is not redeemable until I’m 59 years and a 1/2, this means that I won’t need the money for another 32 years. With this type of time horizon, perhaps funds/stocks with bigger price movements than an index fund are more suitable for me.
Even though they have ridicules fees, this option for me is not out of the question. I’ve been so impressed with Wells Fargo through banking with them for the last 5 years that I might be willing to play extra to have my money invested with them.
The only negative I see with this is really the cost. They charge something like $75 per year for maintaining the account and this just might be too much.
What Do You Think?
If you were me, what would you do?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.