After I left my job last year, I had to decide whether to roll over my 401(k) or just keep it at my old employer. There are some advantages to leaving the money at your old 401(k), chiefly federal law protects the money in 401(k) plans from most lawsuits. It’s too bad IRAs do not enjoy the same protection.
However, my old 401(k) plan had one big restriction. Specifically, the employer contribution portion of the plan had to be invested in a private “Global Diversified” fund. Since I wanted to gain full control of my retirement investment, I decided to rollover to E*Trade where I could invest in anything I wanted.
How did I do since November?
I rolled over my 401(k) and went with the equal sector weighting strategy. The main idea behind this strategy is that the SP500 index is overweight in volatile sectors – Technology and Finance. The SP500 index is also underweight in more stable sectors like utilities and consumer staples. The equal sector weighting strategy will have lower volatility than just investing in the SP500 index fund.
The private “Global Diversified” fund went up 4.4% since I rolled over my 401(k). In comparison, my IRA increased 8.3% since then. That is a huge difference and it was worth the trouble of rolling over to an IRA. Of course, everyone is an investing genius when the market is going gangbusters like it did over the last few months. The true test will come when we have a big down market. I plan to be done with bond allocation by that time. If it all goes according to plan, the bond allocation and equal sector weighting strategy will result in less losses than the index during a down turn.
Current Asset Allocation
Here is a look at the current asset allocation in my IRA. I ran the account through Morningstar Instant
X-Ray to see how it is doing. Overall, it looks ok and all the sectors are somewhat equally weighted. One aberration here is the Utilities. I allocated 15% for bonds, but I don’t think it’s the right time to buy bonds yet so I stashed that money in utilities for now. I will move it to bonds later.
Another big advantage to rolling over the 401(k) is the ability to control costs. I was paying over $1,000 per year in fees when my investment was in the old 401(k) plan. Now that I’m with E*Trade, I minimize costs by investing with Vanguard ETFs. In fact, Vanguard just reduced the expenses on 10 industry sector ETFs earlier this year (among other funds.) As a result, I’m paying only about 0.16% in fees. The “Global Diversified” fund has an expense ratio of 1.03%. That’s quite a bit more taken off the top every year. This can be especially painful in a down year because they’ll take 1.03% of your money when your investment is already losing money.
Keep an eye on your 401(k)
Every 401(k) plan is different and it’s up to you to figure out if you should roll it over to an IRA or not. If your 401(k) plan is restrictive and doesn’t have enough good choices, then perhaps rolling it over is the way to go.
If you need help keeping track of your finances, try using Personal Capital to manage your budget and net worth. It can help you keep track of your income, expenses, and net worth, all in one place. Personal Capital is geared for investors and has many great tools. See my review of Personal Capital and how they helped me reduce what I’m paying in investment fees.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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