Value funds tend to payout a higher rate of dividends. If you
take advantage of them in a tax deferred account, you may come out
better than if you have the same fund within a taxable account since
you can defer the dividend gains in the tax deferred account.
considerations are the class of shares the mutual funds within your
401(k) are offered in. Personally, if there are plenty of quality
choices within your 401(k), I would try to avoid the A Class of mutual
funds with in your plan. Reason being is that you are charged an
upfront sales charge going in. If its five percent, then it is like
being down five percent from the get go. I am not saying A Shares are
bad, just in this situation, where you are in for the long haul, you
cut yourself short. However, if selections are limited, and the only
quality options are in the A Shares versus B Shares (B Shares have a
deferred sales load), then the A Shares may provide better value by
You also want to be kept updated by your retirement
specialist determine if you qualify for the new Roth 401(k). You will
not receive the tax deferred benefit of a regular 401(k), but instead
receive tax free distribution. This is a great advantage especially to
those in the higher tax brackets at retirement. With regular tax
deferred accounts, you have guaranteed a partnership with the
government when you retire. Like a Roman paying tribute to Caesar,
Uncle Sam will get a cut of your retirement at your then tax bracket.
If you are currently on the edge of a tax bracket, you may want to
consult your tax advisor, but in general the Roth 401(k) is a powerful
tool for investors.
Failing to make sure the allocation of
your 401(k) is in line with your total portfolio is a common mistake.
View your assets as the sum of the whole and not as individual parts.
Often you see people who work in an industry heavily weight their
401(k) in the same sector. Then they often repeat the process in the
remainder of their investments. This is a large risk if uncalculated in
the event that sector takes a decline.
In the late 90s, it was
common place for employees to have their entire retirement riding on
their company stock. Again I would use strong caution in having over
10% of your total portfolio tied into company stock. Once again it
depends on the situation, but one really needs to access whether the
benefits outweigh the risks.
Often you see company officers
and key employees selling portions of their stock throughout the year.
It is not necessarily a red flag, but often they realize too much of
the net worth is concentrated in one area and there is the need to
reallocate. This is a wise move especially those who have accumulated a
sizable portion of stock and stock options.