Johnson Controls SIP 401(k) Investment Guide
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.
Retirement Income Contributions. Additional opportunities for company contributions.
Roth option. Especially when beginning to save the Roth option provides an opportunity to minimize your future tax burden.
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.
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.
One of the advantages of a plan like the JC plan that have solid core holdings is that in a rounded out portfolio these often will be the largest need for these funds, and they are available at a lower cost than can be purchased independently.
One 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 JC 401(k), and supplement with independent savings outside of the plan.
If you are saving at a rate above the JC match, consider your other options for transferring that additional savings to other tax advantaged accounts outside of the JC 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 JC 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:
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 JC 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.