NEW YORK (CNNMoney) -- The investment company that manages my 401(k) funds recommends I roll my money into mutual funds managed by a subsidiary of theirs when I retire next year. But I'm wondering whether I would be better off moving my assets to the funds of a different firm. What are your thoughts? -- J. Thomas
It's no surprise that the company overseeing your 401(k) wants you to keep your money in-house. After all, if the assets stay under the corporate umbrella, the firm gets to keep collecting management fees.
So the recommendation to keep it all in the family isn't exactly what I would call impartial advice.
That's not to say that going with a related firm is necessarily a bad decision. It could be a good one if the affiliate can offer a good package of services and performance at a reasonable price.
But the only way for you to know whether that's the case, is to take a closer look at this new investment your present 401(k) manager is nudging you toward, and see how it compares against the alternatives, of which there is no shortage.
To help make that evaluation, here are three questions you can ask:
1. Will I have enough choices to build a diversified portfolio?
Many mutual fund firms, especially the big ones, give you access to the funds and ETFs offered by competing firms. Nonetheless, you want to be sure that you have access to a roster of funds that allows you to put together a well-balanced portfolio. At the very least, that means funds that give you exposure to large- and small-cap stocks, international shares and broadly diversified bond funds.
At the same time, you may want to avoid "boutiquey" firms that emphasize particular niches -- growth or value styles, momentum investing, whatever -- as it may be more difficult for you to get all the ingredients you need for a healthy portfolio. Similarly, you'll want to be careful about choosing funds that give their managers wide leeway in switching investment strategies. Yes, that flexibility can lead to better returns, but it can just as easily backfire.
For a sense of the breadth of a fund family's offerings, as well as a quick look at performance, check out the Fund Family Research and Data section towards the bottom of Morningstar's main Fund page. To look beneath the hood of one or more funds and see how they're actually deploying their assets, plug the fund names or ticker symbols into Morningstar's Portfolio X-Ray tool, which is available free at the T. Rowe Price site. (You'll need to register, but there's no charge).
Ideally, you'll also want to go with a fund family that keeps its interests aligned with those of shareholders. That's a tough thing for individuals to assess on their own, but you can get a sense of how various fund families rank on that score by checking out Morningstar's Stewardship Grades. Typically, these are available only to people who subscribe to Morningstar's premium service. But this research paper provides the grades as of earlier this year for 44 fund families and also outlines what goes into the stewardship ratings.
2. Can I get some guidance?
If you're okay building a portfolio on your own --and clear on issues like how much you can safely withdraw from your portfolio in retirement and how to calculate required minimum distributions -- then maybe this isn't such a big issue for you. That said, it's nice to be able to get some help should you need it, or maybe get a second opinion about whatever you plan to do.
So before deciding where to move your stash, take a look at the company's site to see what tools and advice are available. You might also call one of the reps, tell them you're considering a rollover and see whether they can handle questions about specific funds and have any insights about important tasks like setting a withdrawal strategy.
Sure, you can always find tools and information at any number of other sites around the web. But if a fund company has put resources into helping its fund shareholders make better decisions, then that suggests the company is aware of the issues retirement investors face and is making some effort to address them.
3. Are the fees reasonable?
Lower costs ultimately mean more money in your pocket. For example, the difference between a fund earning 7% annually vs. one with expenses a half percentage point higher that earns 6.5% amounts to more than $30,000 on a $100,000 portfolio over 20 years.
But while costs are important, I don't think you have to obsess about every single basis point to have a successful retirement portfolio. As long as you stick with investments that have modest expenses -- by which I mean lower than the average for similar funds -- you should do just fine.
Fund fee information is pretty available on the web these days. And if you go to the Fees and Expenses tab in the X-Ray Details section of the Portfolio X-Ray tool, you'll not only see the expenses ratio of each fund you've plugged into the tool, but the average expense ratio for each fund's category, as well as sales charges, if any. You'll also find the names of funds with below-average fees on our MONEY 70 list of recommended funds.
Finally, in the "I know you didn't ask, but I thought I'd mention it anyway" category, be sure to tell the administrator of your 401(k) to do a trustee-to-trustee, or direct, transfer to your IRA. That way, you'll avoid the 20% withholding requirement that applies if your plan just sends you the balance in a check made out solely to you.
And even though you're retiring rather than switching jobs, you may want to roll this money into a new IRA rollover account rather than stick it into an existing IRA account that includes money that wasn't rolled over from a company plan.
The reason is that some employer plans accept only IRA rollovers consisting exclusively of "qualified dollars" -- that is, money that has come from other 401(k)s or similar plans. So by opening a new IRA for your 401(k) rollover, you preserve the option of moving the money back into another employer's plan, should you decide to go back to work.
|Make $30 an hour, no bachelor's degree required|
|McDonald's gives Charles Ramsey free food for a year|
|Why doesn't Apple cut its prices and sell more iPhones?|
|Insanely durable smartphone ... from Caterpillar?|
|The 'chicken poop' credit and other bad tax breaks|
Carlos Rodriguez is trying to rid himself of $15,000 in credit card debt, while paying his mortgage and saving for his son's college education.
Susan Carson and Laura DeLallo make $225,000 and have half a million in retirement savings, but their sprawling portfolios is proving hard to manage.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.75%||3.66%|
|15 yr fixed||2.89%||2.79%|
|30 yr refi||3.74%||3.64%|
|15 yr refi||2.89%||2.79%|
Today's featured rates: