Investing in Bonds: Part 3: Retirement Support

Do not pay high fees

Here is why if you do not use a 401K, use a self directed IRA at an online brokerage firm. The fees are lower. Here is why I stay away from mutual funds. I invest in stocks and bonds. The fees are lower. The less you pay in fees, the more you have for retirement.

All funds in a 401K charge an annual fee called the "Expense Ratio." The average annual expense ratio for 401K funds is 0.58%. You should be able to find the average expense for every fund in your 401K by logging onto your online account.

A free service at Future Advisor (futureadvisor.com) provide ratings on thousands of 401Ks. If your fund charges high fees, check to see if the fund has at least one index fund offered. About 70% to 80% of plans offer an index fund. Index Funds are not actively managed, so the fees are lower.

A Smart Rollover

If you have an old 401K at your past job, check the fees on those accounts. You can move that money to a retirement account at a discount online brokerage firm. Here you can invest in low-cost funds and exchange traded funds(ETFs). You can also invest in individual stocks and Bonds.

This move is called a "IRA Rollover." The company that you are moving your account to will help you with the "Rollover Paper Work." I suggest you do this because it is important that you are authorizing a "Direct Rollover." You do not want to trigger any tax bill at the time you move the money .

Never take a loan from your 401K

Many 401K plans allow participants to take a loan from their accounts. Taking out a loan from your account is mortgaging your future. Going back to part 1 of this series. What if;

The company that you are working for will close its doors, throwing you out of work.

The company that you are working for is bought out moving the company to another state throwing you out of work.

Your job is replaced by technology meaning that your services is no longer needed.

The company is downsizing and you are the one being downsized.

The money that you borrowed may come due at that time. That is the time when you can't pay it back. That means that you will generate a large tax bill.