Our Investment Philosophy
Some of the greatest expenses in a 401(k) plan come from the mutual funds internal expense ratio. Every mutual fund collects a fee from the accounts of investors. This is the way that mutual fund companies earn money:
- Manage funds that grow
- Collect a small percentage of the assets
In addition to this, many funds collect a fee and pay it to the broker or advisor who is recommending the fund to an investor. These fees are known as 12b-1 fees and Sub-TA fees. Until fairly recently, these fees weren’t disclosed to investors, but were instead just included in the expense ratio of the fund. However, these fees add up to quite a bit of money.
In a reason Fidelity study, it estimates that for every half percent in fees that an investor pays, they lose about $110,000 in future investments.
This is why our philosophy is to keep the internal costs of the funds as low as possible without sacrificing performance.
We prefer to use no load mutual funds, which do not have a sales charge. Also, if we include a mutual fund in your investment options that has a 12b-1 or Sub-TA fee, we will reimburse that fee back to the investor.
We do this for a number of reasons.
- It improves the overall performance of the portfolio
- It helps make sure that Slavic401k is doing business in a way that is very compliant with regulations
- It removes our bias in the funds we choose
Rather than recommending funds that will pay us to investors, we make our recommendations based purely on cost and performance.
This helps keep your best interest in the forefront of our business interests
We also prefer to include index funds when it’s possible. Index funds are designed to track major market indexes, like the S&P 500. This is known as passive management, and has been effective in outperforming actively managed mutual funds. In contrast to actively managed funds, index fund managers just maintain the appropriate stock ratios that make up the fund, rather than buying and selling as frequently as they do with actively managed funds. These funds have a much lower internal expense, sometimes as low as five hundredths of a percent.
These different factors combine to provide the greatest amount of savings for the investor, while also providing superior service to any level of investor, whether experienced or just starting out.