Although many employers offer retirement plans to their employees, the typical “cookie cutter” mutual fund can be stocked with expensive fees that drastically decrease the overall performance of the investment.  Your typical managed mutual fund could tack on fees for management, sales charges and other expenses that can take away 2% of your profit right off the bat.  Variable annuities are also often included as part of your retirement package, and without asking the right questions and carefully selecting your annuity you are also at risk for unnecessary and excessive fees and expenses.    Some employees elect to avoid all the fees and mess associated with a managed mutual fund, and go solely into their company stock.  The problem with that is their putting all their eggs in one basket.  If your company doesn’t perform, your entire retirement could be at risk.

ETF’s As Part Of Your 401(k) 

Another alternative to consider is an ETF (Exchange Traded Fund).  Typically, ETFs are lower cost than other options, but also offer liquidity and a great profit potential.  Compared to the 2% fees you may experience with a managed mutual fund, an ETF will typically have fees of around 0.4%.  That’s a significant amount of savings right there.  As ETFs have gained popularity, there are more and more options to choose from.  Currently some of the better options include:  Equity Income funds, Domestic Growth Funds and Growth and Income.   Each of these different options target different aspects of the market  Most which try to match or out perform certain indexes.  For example one ETF, Proshares Ultra Utilities sets out to double the performance of the Dow Jones U.S. Utility Index.  It is still a relatively new investment, but has been outperforming its peers since its creation in 2007.

The Danger Of ETFs As An Investment

Although ETF’s can offer some significant advantages because of their high profit potential and lower fees in comparison to a managed mutual fund or an annuity, ETF’s can also pose some risk to less experienced investors.  Because of the low cost and liquidity, many beginner investors can be tempted to overtrade them, which can cost them as they lose out in trying to time the markets.  In order to effectively select and manage an ETF that will complement and grow your retirement 401(k), speak to a Redhawk Financial Advisor near you .  A Redhawk Advisor can help give you a more thorough education on how to avoid ETF pitfalls and to use the investment as a complement to your portfolio.

www.investopedia.com/articles/investing/032813/best-etfs-your-401k.asp?utm_source=newstouse&utm_medium=Email&utm_campaign=NTU-04/03/2013