In another article, I analogized fees on mutual funds to jockeys on racing horses. My point was that there are some great, well managed mutual funds out there, but that some of those funds that have such staggering fees that they become like a prize-winning race horse saddled with a chubby jockey.
I had some new clients come into my office today. They had been retired for over 10 years, and still had a large portion of their retirement money in a 401(k). I looked over their portfolio, and found that not only were there fat jockeys riding the mutual funds in the 401(k), but the 401(k) had its own fat fees on top as well! These poor folks were betting their retirement on a horse with two fat jockeys on it!
A lot of investors with money in a 401(k) should make preparations to move that to an IRA right away. Why do I say that? I have a Labor Department report on 401(k) fees and expenses here on my desk that was published in 1998. This report identified the median of all 401(k) annual fees (the fee with as many fees above as below that number). The median was 1.32% in fees on the 401(k). The mean (average) was 1.28%. The bottom line is you are losing one and a quarter percent more money to fees that you could have avoided if that money was in an IRA instead of a 401(k).
Now don’t forget, there are always exceptions. If you’re under 59 ½ and still working for the company where you have the 401(k), there are good reasons to leave it there. But if you’ve stopped working, or left your company, or even if you’re still with the company but you’re over 59 ½, pull that money out now! You’re betting your retirement on a horse with twin jockeys on his back!
