401(k) plan review – Fidelity BrokerageLink

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In 2011, my company restructured our 401(k) plan. Previously, we had about 50 mutual funds and investments to choose from in the 401(k) plan. As you know, people can be paralyzed into making no decision at all when there are too many choices. I think 50 choices are way too much and many employees didn’t participate in the 401(k) plan. So the company revamped their plan to reduce choices and added the Fidelity BrokerageLink option.

With the new plan, we have about 13 investments plus target date funds to pick from in addition to the company stock. If the employee did not make investment elections, then their contributions default to the target date funds. I think this is good for many employees. It’s easier to choose from a smaller pool of investments and if the employee doesn’t know much about investing, they can still benefit from the target date funds. There was a huge outcry when this plan was introduced because employees thought that their choices would be limited. However, this is not the case because of the Fidelity BrokerageLink option.

From what I understand, the Fidelity Brokerlink plan is a bit different for every company so check your documentation if you have any questions. The plan opens up a huge number of options for me. I can access nearly 5,000 mutual funds that are listed on the Fidelity FundNetwork and any ETFs. Unfortunately, my plan does not include stocks.

Fees

FundsNetwork NTF Funds: no transaction fee and no load. There is a $75 short-term trading fee if you held the funds for less than 180 days. Once you place 15 short-term trades in 12 months, Fidelity will charge a transaction fee each time you trade for the following 12 months. Basically, if you are a frequent trader, you’ll pay plenty of transaction fees.

FundsNetwork TF Funds: $75 transaction fee per investment.

ETF: $7.95 per trade.

Many of the Fidelity’s low management fee Spartan funds are NTFs and would be a good choice for long term investors. However, I am more familiar with Vanguard and Fidelity BrokerLink enables me to purchase Vanguard ETFs. I like Vanguard’s low fee business model and their wide selections of ETFs.

It’s easy for me to pick a sector or market segment and then purchase the corresponding Vanguard ETF. I was low on small cap and emerging market, I added VB and VWO over the last few months.

To minimize fee, you can stash your contribution in a Fidelity total market fund (NTF) and then convert it to an ETF after 180 days. For example, if you contribute $200 every paycheck, then it doesn’t make sense to pay the $7.95 fee and purchase an ETF every 2 weeks. I think it’s better to save up in a NTF Fidelity fund for 6 months to about $2,400 and then buy a batch of ETF.

All in all, I’m quite happy with the Fidelity BrokerageLink account. I suspect it’s partially due to the nice 6 months we’ve had in the stock market. What about you? Are you happy with your 401(k) plan? Do you think you would be better off with the Fidelity BrokerageLink account?

If you don’t have a Roth IRA account, you should open one to give yourself the more options in the future. Open an E*TRADE Roth IRA. No Fees. No minimums and get up to $600 when you rollover or transfer.

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