Match on contributions. Any match provides a fantastic boost to investment returns.
Self-Directed Brokerage Option with Schwab. This option allows you to avoid the poor options in the plan and craft your own intentional plan for retirement.
Roth option. Especially when beginning to save or if someone in your family expects a pension in retirement the Roth option provides an opportunity to minimize your future tax burden.
Extremely limited opportunities to diversify without using active, gambling managers. Limited diversification and use of high cost, active managers is common of most retirement plans, it is still detracts from attractiveness of using the Home Depot selected options for your retirement savings.
Limited asset classes. While the plan sports many US stock funds, there are too few choices in many investment categories necessary for a complete portfolio.
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 underlying fund 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.
Overall, the funds have little to offer over investing in the lower cost index fund choices available in the plan. We strongly recommend using an advisor to craft a plan to take advantage of the Self-Directed option, especially if your balance is greater than $50,000.
While overall the choices in the Home Depot plan are less than desireable, you have a great option to avoid those funds and craft a market-based plan on your own with the Self-Directed Brokerage account. Within that account you can invest in a wide range of investment funds that are allowed within the brokerage window.
Another strategy is to use the core options 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 Home Depot 401(k), and supplement with independent savings outside of the plan. This allows you to be sure that even if the brokerage window is taken away in the future that you will be able to diversify.
If you are saving at a rate above the Home Depot match, consider your other options for transferring that additional savings to other tax advantaged accounts outside of the Home Depot 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 Home Depot FutureBuilder 401(k) in an Integrated IRA / Roth / Taxable Strategy
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 Index Funds
International Marketwide Value
Emerging Markets Core
Emerging Markets Marketwide Value
Emerging Markets Small
Diversified, short-term bonds
Inflation protected bonds
Foreign Bond Index
Using an effective combination of the above investment categories in combination with your Home Depot 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.