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Guide to Managing Your Ford SSIP / TESPHE / FSP Plans


Strengths

  • Core options. There are several good core options available at institutional level cost.

  • Match on contributions. Any match provides a fantastic boost to investment returns.

  • Opportunities for non-hardship, in-service withdrawals. An overlooked part of retirement planning is planning for distributions. A portion of your plan value may be eligible for rollover to an IRA while still in-service. IRAs allow for much greater control and broader diversification.

  • Roth option. Especially when beginning to save the Roth option provides an opportunity to minimize your future tax burden.

Weaknesses

  • Limited opportunities to diversify without using active, gambling managers. While limited diversification and use of high cost, active managers is common of most retirement plans, it is still detracts from attractiveness of using the Ford plans as your only investment account.

  • International small cap employs a growth tilt and actively manager. While T. Rowe Price International Small-Cap Equity Trust adds an important asset class that is missing from many workplace retirement plans, we would prefer the portfolio choice for international small cap would include a tilt towards higher book-to-market stocks (value investing). Additionally, active management is not our preferred choice for any asset class, and while many international small cap managers claim to add value for their fee, there are many problems with that claim including that they typically are not compared against appropriate indexes and they often achieve greater returns only through “burying risk.” While we have this fund on our model portfolio, if there is an opportunity to diversify into this asset class outside of the Ford plan, we would prefer investors seek other options.

  • No true emerging markets option. T. Rowe Price International Small-Cap Equity Trust crosses over developed and emerging markets, and has an emphasis on only a portion of that market. This blend makes it difficult to judge the fund’s actual performance, and to allocate intentionally to emerging markets.

  • Lifecycle funds. The BlackRock LifePath® Index retirement target date options are meant to be a managed portfolio based around an expected retirement date. We strongly discourage their use as the only investment option, and given the alternatives believe they should not be considered.

Strategically, the weighting of the BlackRock target date funds (Tier 1) underlying investment choices is less than desireable. A more diversified mix across stock asset classes with a tilt toward value stocks may improve results for the long-term investor.

The Core funds (Tier 2) do provide some measure of market-based investments which fit into our philosophy, and they are offered at great costs.

However, we would prefer to see more choice in order to manage areas of the market and control our weightings than we can in these funds. The SSgA Real Asset fund for example invests in Real Estate, Inflation-Protected Bonds, and Commodities. The mix, while it may be appropriate, allows no control over the amount of Inflation-Protected bonds we may choose in a model portfolio. Likewise, the domestic and international indexes could use more value, small, mid, and emerging markets choices.

Overall, the actively managed (Tier 3) funds have little to offer over investing in the lower cost index fund choices available in the plan.

Strategies

One of the advantages of plans like the Ford plans that have solid core holdings is that in a rounded out portfolio these often will be the largest need in a diverse portfolio, and they are available at a lower cost than can be purchased independently.

One strategy is to use the core options (marked as Preferred Funds) within the 401(k) and diversify further outside of the plan. By utilizing a companion IRA, Roth IRA, or taxable account, one can take advantage of very low-cost core investment options in the Ford 401(k) plans, and supplement them with independent savings outside of the plan.

If you are saving at a rate above the Ford match, consider your other options for transferring that additional savings to other tax advantaged accounts outside of the Ford plan. Depending on the particulars of your tax and investment situation you may be eligible for and benefit from:

  • A deduction for your own IRA contributions

  • A Roth IRA

  • A non-deductible IRA conversion strategy

It may also be in your benefit to invest in a taxable account. There are significant benefits to the current and future diversification of holding a combination of taxable, tax-deferred (pre-tax), and tax-free (Roth) accounts.

You may also take advantage of the benefits available within a spouse or partner’s plan to achieve greater diversification and create a holistic investment strategy over the best options available to you over all of your plans.

Asset Classes to Complement Your Ford 401(k)

It is important to not minimize the fact that the investment options provided do not cover the world of available options. By not being able to participate in markets, you may reduce return potential and increase volatility. See our Forbes post on how a retirement plan with basic options can cost a saver millions of dollars over their lifetime.

Below is a list of asset classes to utilize in your own accounts that complement our model recommendations:

  • Domestic Marketwide Value

  • International Marketwide Value

  • Emerging Markets Core

  • Emerging Markets Marketwide Value

  • Emerging Markets Small

  • Diversified, short-term bonds

  • Foreign Bonds

  • Real assets including real estate, commodities, and precious metals

Using an effective combination of the above investment categories in combination with your Ford plan can improve your investment experience. The benefits of increased diversification can result in a less volatile portfolio.

For more information on the above strategies and other investment ideas linked here is a complementary PDF version (Password = clearandfree) of our book Clear Investing, Intentional Investing.

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