How Do I Choose An Investment?
Participation in the 403(b) program is voluntary and each employee is responsible for the selection one or more tax-deferred vendors at any given time. Considerable information about each vendor is available for each employer, please visit your employer's plan information page, linked from the "For Employee" button above or by clicking here. You may also want to consult with your own stock broker, tax advisor, financial consultant, or insurance agent. Neither your employer nor Carruth Compliance Consulting, Inc. can offer any investment advice, promote any one product over another, or evaluate, monitor, or recommend companies to sell 403(b) annuities or 403(b)(7) custodial accounts (mutual funds).
Generally, Vendors offer access to their investment products in three different ways, via:
- In-house financial professionals
- Independent financial professionals
- Directly to plan participants.
To see the approach used by a specific vendor, please visit our Vendor Go-To-Market Overview page.
Before contacting companies, you should try to learn about some of the different investment opportunities available. Numerous books about money and investments are available in bookstores, from libraries, and on the internet, including the Wall Street Journal's "Guide to Understanding Money and Investing" and Consumer Reports investment ratings. Also available is Morningstar's "Variable Annuity Performance Report," which evaluates the underlying investments of many annuities and mutual funds. Additional useful web links may be reviewed by clicking here. Learning basic information will help you decide how to invest.
There are some levels of risk in any type of plan you chose. Generally, the more risk you take, the higher the potential return. Make your decision on which type of plan you want and how much risk you are willing to take.
Beware of investments with fees or loads that are excessive or hidden. Many investments have declining fees over time or charge only a low one-time fee each year. Avoid annuities that advertise a high rate of interest that is only good on the money invested initially. After the initial period at the high rate, the money may earn a lower rate.
Positive signs of a good product are ones that have flexible payout policies once you retire. Look for solid ratings for the investment company in A. M. Best, Standard & Poor's, and Moody's. Check to see how well a given investment has performed against the industry average for similar investments. A good company will be proud to show you their performances in these areas.
Before committing to any 403(b) investment, ask the following questions:
- Will I be penalized for pulling my money out?
- What are my investment choices within the company?
- What annual fees will I pay?
- For annuities, how is the insurance company rated?
- Does the investment being considered have any restrictions I should be aware of in terms of transaction availability (such as no loans or hardship distributions)?
What If I Need Investment Advice?
One large insurance and annuity company advertises that it 'manages money for people who have other things to do.' Some investment companies offer enhanced products that include investment and financial advice, usually for an extra fee. Check out some of the products and services offered by companies on the vendors list to see if they offer such investment advice to clients. The more common situation is for employees to secure the services of a financial advisor, sometimes referred to as a financial planner or a financial representative.
How Do I Choose An Advisor?
It's been said that some people spend more time on choosing an automobile to purchase than they do on selecting a financial advisor. If that observation has a ring of truth to it, it may be because people are familiar with the daily driving experience and the ease of deciding what they want. In contrast, financial management is a task that, for most people, involves decisions and considerations that they know little about. They also find it difficult to assess the qualifications of those who provide financial services. The following web links provide helpful information about selecting a financial advisor.
More Information on How to Choose an Advisor
We also provide a full page of additional advice on qualities to look for in an advisor and pitfalls best avoided. Learn More
Contact us if you have questions about any of the information provided on this page.