Wednesday, September 14, 2011

401K Alternative Options

I mentioned several months back, in a previous post, that I'll be keeping track of my net worth in a spreadsheet every month.  We had started the year debt free, minus the house and had bumped up our investments to the Dave Ramsey recommended level of 15% and we wanted to keep track of our progress overall.  Since we were putting more of our pay into our 401k and Roth IRAs, our bank accounts might not be going up as much or could be staying the same or going down a bit.  However, as long as our net worth is upward sloping, things are heading in the right direction. 

We started out strong, with a 2% increase in our net worth from April to May, so I was happy with our progress.  However, going from May to June, our net worth was a only a few hundred dollars more than the month before.  We had some vacation time in there and also the wifey's summer classes/books, etc, but it was still positive at least.  Luckily from June-July and then July-August, it continued the upward slope, up 3% and 2% respectively.  Which brings us to August-September.

I knew the stock market has done terrible in August, going down between 5-10% at various times throughout the month, so I was expecting a very minor increase or slight decrease.  Unfortunately, it was a 2% decrease month to month.  That comes with the territory of investing, as there are always market gyrations from week to week and month to month, but I wasn't happy about that.

By comparison, I checked my rollover 401K that I'm actively trading in a brokerage account and it was actually up a few hundred dollars instead of down 5-10% like the overall market.  I was lucky enough to sell just about everything I had in late July (prior to a weekend getaway) and had been in 98% cash and that's where I still am at the moment.  I got to thinking....I could have potentially avoided several thousand dollars in paper losses by selling similar to when I did in my trading 401k. 

Of course, it is very difficult to time the markets and for the long term, for most it's probably better to keep things where they are and continue your regular contributions, averaging down over time, however I would have liked the option to be a bit more nimble.  With regular 401K accounts, you're limited to the mutual funds available and you cannot sell right away, it takes a day or two to exit a trade and you may incur an additional fee if you've owned the fund for less than 90 days.  It all depends on the mutual fund and your 401K provider.

So I started to search the internet to see if it's possible to transfer your 401K to a rollover 401K with a broker, while still working for that company.  My initial thought was that is not possible and most of what I read confirmed that.  You would either have to leave your job or have a 'qualifying event', such as reaching retirement age.  But I emailed my contact at the contract company I work for and found out I may have another option.

She told me about an option available with my existing Fidelity 401K called Brokerage Link.  From what I understand so far, you can transfer your $ from your regular plain 401K over to a Brokerage Link account and can then actively trade stocks and mutual funds.  That's exactly what I was looking to do, but was also hoping I could trade options similar to my Scottrade 401K account.  It looks like their plan does not allow options trading, but I could keep this 401K for stock trading and use my other one for options trading, so that would work fine.

I requested the plan information be mailed to me Monday and am looking forward to the results.  The trading fees are 10.50 per trade, which is a bit more than most discount brokers, but not outrageous.

I had never heard of that option before, so wanted to share that in case you are looking to do something similar.  As always, it depends on your risk tolerance and whether or not you have the time/desire to take a more active role with your retirement account(s).

Open an IRA @ OptionsHouse Today.
If you happen to have an old 401k from a prior employer, you can transfer that 401k to a rollover 401k/IRA with a discount broker and can actively trade that account.  Options House has super low $3.95 commision rates per stock trade and they also have an ongoing promotion providing 100 free trades and they cover any transfer fees up to $125.  Great deal.

Do you have any interest in being able to have a more active role with your 401K vs a limited number of mutual funds to choose from?  Or maybe you're happy with the funds you have to choose from and are happy with the results so far this year?  Either way, I'm interested in hearing what you think!


Jen said...

I am in it for the long haul and hope to do minimal work to see it grow. It's a lot to keep up and maintain if I were to go your route. As long as I have $X amount when I retire then I am good with how I get it.

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