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How To Manage Your Self Directed 401(k) Plan
This document discusses enhancing investment choices and flexibility for retirement accounts like 401(k), 403(b), and 457 plans, emphasizing the benefits of self-directed brokerage accounts. It highlights risks associated with different investment strategies and the importance of seeking professional investment advice, which can significantly improve investment returns. Additionally, the document describes various asset management styles and the features of a brokerage window that enables more active trading options for investors.
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How To Manage Your Self Directed 401(k) Plan
- 1. More Choice, More Flexibility and Investment Adviceon Your 401(k), 403(b) and 457 GET YOUR RETIREMEN T BACK ON COURSEMore Choice, More FlexibilityMore Choice, More Flexibility and Investment Advice for yourand Investment Advice for your 401(k), 403(b) and 457401(k), 403(b) and 457
- 2. Investments in modelstrategies have additional management fees and expose the investor to the risks inherent within the model and the specific risks of the underlying investments directly proportionate to their investment allocation. There is no guarantee that the portfolio invested in will meet its stated objectives. Stock and bond values fluctuate in price so that the value of an investment can go down depending on market conditions. Stock prices may fluctuate due to stock market volatility and market cycles, as well as circumstances specific to a company. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and Interest payments. Investments in higher-yielding, lower-rated corporate bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investments in foreign markets entail special risk such as currency, political, economic and market risks. The term “real return” makes reference to inflation adjusted rate of return Past performance is no guarantee of future results The material provided herein has been provided by The Pacific Financial Group, Inc. Registered Investment Adviser and is for informational purposes only. The Pacific Financial Group, Inc. is the adviser to one or more mutual funds distributed through Northern Lights Distributors, LLC member FINRA. Investment Advisor Representatives (IARs) using this brochure are registered and offer securities and advisory services through their respective Broker/Dealers & /or Investment Advisory firms. The Pacific Financial Group, Inc. & Northern Lights Distributors are not affiliated to the IAR’s Broker/Dealer or Investment Advisory firm. The information herein is intended to be used for educational purposes only and does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities. Disclosures Now You’re In Charge Plan Updates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview
- 3. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview The Plight of the Investor As the chart shows, the study revealed the S&P 500* returned 9.22% while equity investor’s return over that same period was a paltry 5.02%; a difference of 4.20% annually. The average fixed income investor faired no better over the same period achieving 0.71% annually while the Barclays Aggregate Bond Index* averaged 5.74%; a difference of 5.03% annually. ** The source for the Plight of the Individual investor is “The Tyranny of Choice” by N. Scott Pritchard, AIFA®, Capital Directions, LLC. ** Dalbar Study*: 1991-2014 Annualized Returns The Standard & Poor's 500 Index and the Barclays Aggregate Bond index are unmanaged groups of securities considered to be representative of the stock market & bond market in general. Indexes are unmanaged & cannot be invested into directly. Past performance is no guarantee of future results.
- 4. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview The Plight of the Investor Emotion drives investors to buy the latest hot fund near its peak and sell the fund after riding it to the bottom on its inevitable slide downward. This “buy high, sell low” scenario is unfortunately not just an anecdote, but is very real for many individual investors. The end result is simple, buying on greed and selling on fear might satisfy short terms emotional needs, but this lack of discipline will often compromise long-term objectives. ** The source for the Plight of the Individual investor is “The Tyranny of Choice” by N. Scott Pritchard, AIFA®, Capital Directions, LLC. ** * Dalbar Study - average equity investor and average bond investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemption & exchanges. This method of calculation captures realized & unrealized capital gains, dividends, interest, trading costs, sales charges, fees & any other costs. Dalbar Study*: 1991-2014 Annualized Returns
- 5. Morningstar- Major companyanalyzing mutual funds All 1 year returns Large Cap Value -7.58% Mid Cap Blend -9.65% Small Cap Blend -11.26% Tactical Allocation -8.43% Target Date 2040 -6.28% Foreign Stock -6.43% Emerging Markets -20.7% Corporate Bond -2.36% Oil/Energy -37.29% REIT -8.00% Now You’re In Charge Plan Updates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Will Asset Allocation Work * A Brokerage Window is an enhancement to a retirement plan, such as a 401(k), that gives participants the ability to trade directly on a brokerage platform. As opposed to being limited to the investment options within a sponsored 401(k), some investors have the option to set up a "window", which allows them to trade most listed stocks, mutual funds and exchange-traded funds.
- 6. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Common Mistakes
- 7. Pension Protection Act2006 Highlights: • More investment options • Access to investment advice • Risk managed portfolios • Brokerage window* options • Fiduciary Accountability for plan vendors, sponsors and employers Now You’re In Charge Plan Updates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Changes to your Plan * A Brokerage Window is an enhancement to a retirement plan, such as a 401(k), that gives participants the ability to trade directly on a brokerage platform. As opposed to being limited to the investment options within a sponsored 401(k), some investors have the option to set up a "window", which allows them to trade most listed stocks, mutual funds and exchange-traded funds.
- 8. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Self Directed Option How it worksJoe Smith Retirement Account 401k - 401a - 403b - 457 Current Plan’s Investment Options Savings Pool State Bond Choice State Socially Responsible Balanced Investments Active U.S. Value Stock Investments U.S. Stock Market Index Portfolio Active U.S. Core Stock Portfolio Growth Company Investments U.S. Small Stock Index Portfolio International Stock Investments 2055 Retirement Strategy 2050 Retirement Strategy 2045 Retirement Strategy 2040 Retirement Strategy 2035 Retirement Strategy 2030 Retirement Strategy 2025 Retirement Strategy 2020 Retirement Strategy 2015 Retirement Strategy 2010 Retirement Strategy 2005 Retirement Strategy 2000 Retirement Strategy * For illustration purposes – plans may vary in their investment menu Typical retirement plan investment menu
- 9. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Self Directed Option How it worksJoe Smith Retirement Account 401k - 401a - 403b - 457 Savings Pool State Bond Choice State Socially Responsible Balanced Investments Active U.S. Value Stock Investments U.S. Stock Market Index Portfolio Active U.S. Core Stock Portfolio Growth Company Investments U.S. Small Stock Index Portfolio International Stock Investments Retirement Strategies Current Plan’s Investment Options Self Directed Option PCRA or SDBA Self Directed Brokerage Option Self Directed Option • Custom Investment Solution • Incorporating: Your Age Years to retirement, Risk/reward assessment Minimizing overlap * For illustration purposes – plans may vary in their investment menu
- 10. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Self Directed Option 1. The objective of retirement plan accounts is to provide participants with investment options that are more often designed for growth & accumulation rather than wealth preservation. In short, the goal is to help investors save and create an asset base for income during retirement. 2. The industry trend shows fewer “Core” Options will be available. Core options are the pre-selected investment choice made by the employer or named fiduciary for the plan. 3. Allows you to take control of YOUR retirement plan account giving you more choice, more flexibility and access to investment advice. A Valuable Solution
- 11. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Self Directed Option Examples of companies with a “Brokerage Window”
- 12. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Advice Matters Recent studies emphasize the importance of client- advisor conversations. Advisors can ad 3% to clients’ net returns1 and retirement savers who sought investing advice enjoyed a median annual return almost 3% higher than those who didn’t – even after fees they paid for that advice2.
- 13. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Advice Matters Retirement savers who sought investing advice through their 401(k) plan enjoyed a median annual return almost 3% higher than those who didn’t — even after the fees they paid for that advice, according to a new study. *According to the study of eight large 401(k) plans with more than 723,000 participants and $55 billion in assets, by Aon Hewitt, a consulting firm, and Financial Engines, an investment advisory firm. Past performance does not guarantee future results. Published May 2014 The portfolios of people who didn’t get help suffered from: •Inappropriate risk levels and inefficient portfolios. • Misunderstanding risks and market volatility. •Misunderstood risks and market volatility. People who sought help earned 3% more: study* Published May, 2014
- 14. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Advice Matters According to a recent study by Vanguard, most participants adopting managed account advice realize value in some form.* *According to the a Vanguard research based on a sample of approximately 40,000 participants between 2009 and 2013. The Value of Managed Account Advice. Published August 2015 • Increased wealth • Reduced risk • Impact on savings rates • Reallocation of company stock Value of Managed Account Advice
- 15. Now You’re In Charge PlanUpdates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Advice Matters Target Date Funds* vs. Personal Advice Do you want an investment that was designed for millions of participants or do you want something designed for you? Create your personal retirement date portfolio with the advice from the advisor you trust. Coordinate all your assets & define all your goals & objectives Comprehensive investment management & cohesive financial planning * A Target Date Fund (TDF) is a fund of funds model that invests predominantly or exclusively in mutual funds with a certain maturity or specified date in mind, typically the time at which a participant is planning on retiring. Because TDFs are designed to change their allocation & objectives overtime, it is important for investors to revisit their investment selection periodically to make sure that the investment selected is consistent with their goals & objectives. TDFs are not guaranteed & past performance does not guarantee future results.
- 16. The Pacific FinancialGroup Incorporated in 1984 & based in Bellevue, Washington, TPFG is an institutional money manager that has formed a strategic partnership with only a limited number of independent investment advisors to give you the best of both worlds; professional day-to-day asset management that is customized and coordinated for your specific goal and objectives by your local investment advisor representative. Over time we have evolved to now offer our 3rd party investment management services on four distinctly different platforms. 1) Separately Managed Account (SMAs) 2) Managed Portfolios (MPs) 3) Variable Annuity Optimization (VAO) 4) Retirement Plan Management (RPM) & 401(k) Guided Participant Solutions Now You’re In Charge Plan Updates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview
- 17. Separately Managed Accounts(SMA’s) This option is a highly custom portfolio that contains investment options designed for specific client needs – and one that can be tuned for particular tax sensitivities. $100,000 minimum 8 strategies ACAT’s accepted Managed Portfolios (MP’s) This option leverages our proprietary mutual funds to minimize fees – but without compromising any investment discipline. Because these funds consolidate multiple and like transactions, they are a perfect blend of top-of- the-line active money management and cost-effective investing. $10,000 minimum 6 strategies ACAT’s accepted Variable Annuity Optimization (VAO) This option uses sophisticated analytical processes to accurately define variable annuity sub-accounts that are notorious for style drift. We then use these results to rebalance our variable-annuity portfolios with greater clarity and precision. $10,000 minimum 2 strategies New & existing policies accepted Retirement Plan Management (RPM) This option is ideal for 401(k), 403(b), or 404(c) plans that are held at various custodians. We offer turnkey and custom plans using the mutual funds and asset classes offered by the sponsoring company. We accept full fiduciary responsibility for managing accounts. No minimum 5 strategies Turnkey & Custom Plans accepted TPFG Platform AccessibilityNow You’re In Charge Plan Updates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview
- 18. Asset Management Styles StrategicTactical Buy & Hold Static Investment Indexing Focus Asset Allocation Model Typically Well Diversified All-In or All-Out Highly Active Investment Any & All Instruments Big Bets / Overweighting Narrow Investment Focus Now You’re In Charge Plan Updates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Strategic Asset Management Portfolios are built very methodically & mathematically – but once set, it’s static, not often traded if at all. Tactical Asset Management Portfolios can be viewed as highly active and depending on the money manager, using any and all instruments. Typically not well diversified, these nimble money managers also have market timing risks as well as potentially the risks associated with long/short strategies. Long Position: Buying a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. Short Position: The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.
- 19. Asset Management StylesNowYou’re In Charge Plan Updates & PPA 2006 Self Directed Brokerage Account (SDBA) - How it Works - Why it’s a Valuable Option Advice Matters TPFG Overview Dynamic Asset Allocation Buy & Monitor Well Diversified Actively Managed Any & All Asset Classes Risk Controlled Portfolios / Flexible Beta Dynamic Asset Allocation is a combination of both Strategic and Tactical Asset Management styles. Risk controlled portfolio or flexible beta refers to the managers ability to increase or decrease risk of a portfolio relative to it comparative benchmark.
- 20. More Choice, More Flexibility and Investment Adviceon Your 401(k), 403(b) and 457 Thank you!
Editor's Notes
- #10 Slide Description – In large thanks to the attention brought to retirement plans, including the fiduciary roles and responsibilities of plan sponsors, the PPA 2006 has encouraged many retirement plans to include a Self-Directed Option (SDO). This enhancement to the original investment options in their plan creates more choice, more flexibility and the opportunity for participants to be far more specific in their asset allocation. For those participants that work with an financial advisor, this SDO capability and expanded universe may allow advisors the ability to manage their client accounts in coordination with the other assets they are currently overseeing.