401k participant-directed brokerage accounts and 401k mutual funds

Important information about 401k mutual funds and 401k participant-directed brokerage accounts.

For more information about a fund or fund group...
Nothing herein is an offer or solicitation of these securities, products or services in any jurisdiction wherein their offer or sale is not qualified or exempt from regulation. For more information about any fund groups listed in this website, including investment policies, charges and expenses pertaining to those fund groups, contact Pension Service Associates Securities Corporation, an NASD-registered Broker/Dealer, at 1-800-752-4015.

For fund information and free prospectuses, you can also contact the mutual fund company directly at the number listed with the company's investments in this website.

Many mutual fund companies also offer online viewing of prospectuses.

Fund prospectuses are detailed descriptive documents about investments. They are published by the mutual fund company housing the investment and list all fees involved as well as other important information. They must meet stringent disclosure rules.

Fund prospectuses are always FREE. Please carefully read the prospectus for any investment your company is considering for its 401k plan before making any decisions or investing or sending money to the mutual fund companies. Sections of the fund prospectus pertaining to risks, investment goals and investment policies are particularly significant. You may also want to request from the mutual fund company and read the fund company's annual and semi-annual report to shareholders for a clearer picture of the fund's investment goals and policies.

Past investment performance information
A fund's past performance never guarantees its future results. Performance history should only be one of several determining factors in choosing your plan's investments.

Shares are not FDIC insured.
Shares of mutual funds are not deposits of, or guaranteed or endorsed by, any financial institution; they are not insured by the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, or any other agency, and they involve risk, including the possible loss of the principal amount invested.

Shares may be worth more or less than when purchased.
The investment return and principal value of an investment will fluctuate. An investor's shares, when redeemed, may be worth more or less than original cost.

Mutual fund purchase limitations
All mutual fund purchases are subject to a three (3) business day holding period; no exchange or liquidation is allowed within this three-day period.

No-load, no transaction fee funds redeemed within 30 days of the purchase date may incur certain transaction fees.

With the exception of qualified plans such as 401(k), investing in mutual funds is available only to U.S. citizens and permanent residents of the United States.

Load mutual funds come in three classes.
Many load mutual funds are offered in more than one of the three classes of shares (A, B and C). Classes differ in their pricing conventions and/or annual fees. Because there is wide variation even within a single class of mutual funds, reading prospectuses is the only way to be certain of particular investment's pricing and fee structure, regardless of its class.

In deciding whether to choose a particular class of shares for the company plan, it is important to consider the amounts your employees will likely be investing, the shares' anticipated holding period and other relevant factors explained in each investment's prospectus.

Broker/Dealers must be registered.
Federal and state securities laws require that, prior to any direct communication between a broker-dealer or investment advisor and a prospective client residing in a particular state, the broker-dealer or investment advisor must first be registered in the state, or must qualify for an exemption from such requirement. Pension Service Associates Securities Corporation can supply you with free mutual fund prospectuses and other information about commissionable (i.e. "load") mutual funds, unless not currently registered in your state. If PSAS is not currently registered in your state, any request you make for information about load mutual funds will be fulfilled by a Broker/Dealer or Investment Advisor who is registered in your state.

Common investment types, terms and objectives:

Money Market Fund: A relatively low-risk mutual fund (when compared with others) managed to maintain a stable $1 share price/NAV. Investments in these funds are neither insured not guaranteed by the U.S. government, and there can be no assurance that a fund will be able to maintain a stable net asset value of $1 per share.

Bond Fund (aka, Fixed Income Fund): Mutual funds that have higher risks than money market funds but seek to pay higher yields. Not restricted to high-quality or short-term investments (as are Money Market Funds). Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards. Long-term bond funds invest in bonds with longer maturities (a longer length of time until final payout). The values of long-term bonds can go up and down more rapidly than those of shorter-term bond funds.

Stock Funds (aka, Equity Funds): Mutual funds that generally involve more risk than Money Market or Bond funds -- but they also can offer the highest returns. A Stock Fund's value (NAV) can rise and fall quickly over the short term, but historically stocks have performed better over the long term than other types of investments. Not all stock funds are the same (e.g., Growth Funds focus on stocks that may not pay a regular dividend but have the potential for large capital gains; other specialize in a particular industry, such as technology).

Common investment terms

Expense Ratio: The annual fee charged to mutual fund shareholders (usually as a percentage of total investment) for the administration, operation and management expenses associated with a particular fund. May include management fees, 12b-1 fees and other fees, but does not include sales charges. Shows the actual amount that a fund takes out of its assets each year to cover its expenses.

Index: Indicators of trends in markets, sections of the economy, or other economic indicators, such as precious metal or Treasuries. Some of the most common indices include the Dow Jones Industrial Average, the NASDAQ Composite and the S&P 500.

Investment Objective: Indicates a particular fund's investment goals, based on the wording in the fund's prospectus.

Mutual Fund: A collection of money invested in a group of assets (stocks, bonds and other securities) and managed by an investment company (a mutual fund company or other). The combined holdings of the stocks, bonds and other securities and assets the fund owns are known as it s portfolio. Each investor owns shares of the portfolio; each shares represents a percentage ownership in the portfolio holdings.

Net Asset Value (NAV): The per share market value (price) of a mutual fund; in general, the price offered to purchase one share of the mutual fund. The NAV in most cases is calculated b including the closing day's prices of all securities held in a particular fund, plus all other assets owned by the fund (including cash), subtracting all liabilities of the fund, and then dividing the sum by all the outstanding shares of the fund on that given day. If the fund is a no-load fund, then the offering per share price for the fund and the NAV per share will be the same.

Prospectus: A fund's formal written statement, generally issued on an annual basis. In this statement the fund sets forth is proposed purposes and goals, and other facts (such as performance history and investment objective) that an investor should know in making an informed decision.

S&P 500: The Standard & Poor's 500; a market value weighted index of 500 blue chip stocks. An index that's considered to be an overall benchmark of the market as a whole.

Ticker Symbol: The letters assigned to a particular stock, option or mutual fund used to identify that particular security for trading or quoting purposes.

Common investment objectives:

Money Market: Seeks stable income by investing in short-term IOU's .Yields reflect variations in prevailing short-term interest rates.

Government Bond--General: Offerings that pursue income by investing in a combination of mortgage-backed securities, treasuries and agency securities.

Corporate Bond--General: Seek income by investing in fixed-income securities, primarily investment-grade corporate bonds.

Corporate Bond--High Yield: Seek income by generally investing 65% or more of assets in bonds rated below BBB. The price of these issues is generally affected more by the condition of the issuing company (similar to stock) than by the interest rate fluctuation that usually causes bond prices to move up and down.

World Bond: Seek current income with capital appreciation as a secondary objectives by investing primarily in debt obligations issued throughout the world. These bonds are frequently foreign government issues.

Balanced: Seek both income and capital appreciation by investing in a generally fixed combination of stocks and bonds. These funds generally hold a minimum of 25% of their assets in fixed-income securities at all times.

Asset Allocation: Income and capital appreciation are dual goals for funds with this objective. Managers often use a flexible combination of stocks, bonds and cash; some, but not all, shift assets frequently based on analysis of business-cycle trends.

Equity-Income: Funds expected to pursue current income by investing at least 65% of their assets in dividend-paying equity securities.

Growth and Income: Growth of capital and current income are near-equal objectives for these funds. Investments are typically selected for both appreciation potential and dividend-paying ability.

Growth: Funds that pursue appreciation by investing primarily in equity securities. Current income, if considered at all, is a secondary concern.

Emerging Growth: Seek rapid growth of capital and that may invest in emerging market growth companies without specifying a market capitalization range. They often invest in small or emerging growth companies and are more likely than other funds to invest in IPS's or in companies with high price/earnings and price/book ratios. They may use such investment techniques as heavy sector concentrations, leveraging and short-selling.

Small Company: Seek capital appreciation by investing primarily in stocks of companies with market capitalization of less than $1 billion. In this objective, income payments from dividends are unlikely.

World Stock: Funds that invest primarily in equity securities of issuers located throughout the world, while maintaining a percentage of assets (normally 25% to 50%) in the United States.

Foreign Stock: Funds that invest primarily in equity securities of issuers located outside of the United States.

Specialty: Funds that invest primarily in equity securities of issuers within a narrow industrial category. (ie. automotive, travel, electronics, etc.)

The 3 Principles of Successful Investing

One reason to strongly consider using 401k Easy for your company 401k plan is the tremendous array of investments your plan will be privy to. It's no secret that appealing investments inspire initial as well as ongoing 401k participation. They're arguably THE most important determinant to your 401k plan's health and success. (You'll already have nailed down convenience, accessibility, etc., with 401k Easy's user-friendly, 24-hour-a-day-accessible architecture.)

So how do you select investments for your company 401k plan? 401k Easy gives you access to more than 600 mutual fund families representing more than 10,000 different mutual fund portfolios, plus access to self-directed brokerage accounts. Do you offer all the options? Not likely, unless your employees have a tremendous amount of time on their hands to read through 10,000-plus investment prospectuses. So how then do you sufficiently narrow the field without over-restricting it?

This page explains three fundamental principles to effectively choosing 401k plan investments -- not only in terms of the investments' appeal to your employees, but also in helping you meet relevant government regulations regarding diversity, etc., in the investments chosen for each 401k plan. The content has been written in terms of mutual funds but can easily be extrapolated to choosing self-directed brokerage accounts. And remember…

-- Your goal is to derive an investment lineup that will fit the needs and financial objectives of your company's potential 401k plan participants.

-- There is no single "best" lineup of investments.

-- Your choices are not set in concrete. 401k Easy lets you add and/or remove investments from your plan if and when the need arises.

-- We derive no financial benefit or incentive from recommending any mutual fund or brokerage company. If you contact us for help with choosing your plan's investments, you can be assured that our input has only your plan's health and appeal in mind.

-- We follow our own advice. Our investment recommendations will always focus on quality fund providers offering a wide spectrum of suitable investments, ones that span the range from the ultra-safe, low-risk, conservative investments to the highly volatile, high-risk, high-potential-return investments; such can satisfy a wide range of investors, ones with varying personal needs, investment objectives and investing experience.

-- 401k Easy contains an extensive catalogue of easy to understand literature to help your employees make educated investment decisions. We recommend that you, as an employer, refrain from dispensing investment advice. Instead, simply direct your employees to the quality materials contained within 401k Easy.

The most common -- and detrimental -- mistake made in choosing plan (and personal) investments is to base a decision on an investment's performance history, particularly its recent performance history. Investment performance is cyclical: a mutual fund that's blazing hot today may be as cold as ice tomorrow, and vice versa. Past performance is no guarantee of future results. It should be considered as only one indicator of an investment's suitability.

A better approach is to let your objective be your primary guiding light. For choosing your company's 401k plan investments, your objective is to select a spectrum of investments that will prove appealing and satisfying to your employees' diverse investment needs. The spectrum, not fund-by-fund performance, is your quarry.

To achieve a suitable spectrum of investment options, select one, two or three mutual fund families, then choose a cross-section of funds from within each family. Mutual fund companies compete for investment dollars by trying to out-perform each other. Your employees can benefit from this competition with access to even a single reputable fund family; access to a second or third family grants added choice and flexibility. By listing a cross-section of investments within each family group, your employees will be able to find investments that suit their investing temperaments and needs, now and down the road.

At minimum, your plan needs to offer investments geared toward the following:

-- Preservation of Principal
Money market funds are the default choice for "safe" investments. Remember, though, that they are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

-- Income
For a steady stream of income, your plan will need funds that invest in bonds. Like stocks, bonds experience fluctuating share prices, though generally to a lesser degree.

-- Income and Growth
Balanced funds, also known as "lifestyle funds," or "lifecycle funds," invest in combinations of stocks and bonds. Balanced funds that hold a greater percentage of stocks over bonds are more volatile and potentially more profitable. Those that hold a greater percentage of bonds over stocks, on the other hand, are more stable but less likely to return big investment gains.

-- Growth
Stock funds (domestic or foreign) offer the greatest potential for long-term gain, but they also come with the highest risk: they're more volatile and have the greatest potential for posting investment losses.

Stock and bond net asset values (share prices) fluctuate. Some fluctuate more frequently and more diversely than others. While this doesn't bother certain investors -- ones, perhaps, with plenty of time before retirement, ones used to the ups and downs of investing, ones with other sources of emergency money -- many investors prefer to avoid extreme volatility. As mentioned above, "growth" funds tend to be more volatile than "income and growth" funds, which tend to be more volatile than "income" funds, which tend to be more volatile than money market funds.

Investment returns should also factor into your decision. Compare investment returns to those of direct competitors' -- not to those from a different class of funds. You can compare returns of competing investments using any of several online services, including Standard & Poor (www.ratings.standardpoor.com), Morningstar (www.morningstar.com), Personal Fund's Online Fee Calculator (www.personalfund.com ), Mutual Fund Investor's Center (www.mfea.com ), SmartMoney Mutual Funds Research (www.smartmoney.com).

Don't be fooled by "cumulative total returns" showing how much an investment has grown or shrunk over several years. A large cumulative return when translated into average annual returns may not be large at all. For instance, a stock fund with a cumulative return of 101% over 12 years equates to an average annual return of only 6% compounded; such may or may not be competitive with competitors' funds or with the benchmark index.

Mutual funds, even no-load funds, are not free, nor, in general, are fees they charge closely regulated. The fees can vary widely from fund to fund (though competition, of course, does keep things in check to a degree). Each fund family sets its fees. The fees are spelled out within the investment prospectuses.

Mutual fund fees to look for include…

-- Expense Ratio
This is money deducted from a fund's earnings and assets to pay for annual operating expenses, including investment advisory fees, legal and accounting services, postage, printing, etc.

-- 12b-1 Fees and Sales Charges
These pay the fund's marketing and distribution expenses and are incorporated into the expense ratio. Some include a sales charge to compensate sales personnel.

-- Trading Costs
The cost of trading securities, including charges such as brokerage commissions, are not included in the fund's expense ratio but do reduce the returns investors receive.

Most entities that provide and support 401k plan investments -- mutual fund managers, fund distributors, asset custodians, asset trustees, investment brokers and advisors, plan administrators and record-keepers -- earn at least a portion of their compensation from asset-based fees deducted from plan assets.

We at 401(k) Pro, however, are the exception to the norm: We do not earn any compensation -- directly or indirectly -- from our clients' 401k plan assets. In cases where rebates are offered on investments, we have the rebates returned to our clients or directly applied to reducing our clients' costs. Our published prices, available online for all to see, are the only net compensation we collect.

We do not accept any rebates or revenue sharing of fees deducted from our clients' plan assets unless those fees can be returned to the clients' plans or used by 401(k) Pro to offset plan expenses.

Asset-based fees are an unavoidable fact of life if your company uses mutual funds or self-directed brokerage accounts for its 401k. The cost of these asset-based fees should be factored in when determining the true, overall cost of your 401k -- and the cost savings of 401k Easy returning such fees to clients when possible should be factored into our products' affordability.

For more information on asset-based fees we recommend reading "Revenue Sharing in the 401(k) Marketplace--Whose Money Is It?" by The McHenry Consulting Group and Study of 401(k) Plan Fees and Expenses by the US Department of Pension Welfare and Benefits.

401k investments are long-term investment vehicles. They're not designed (nor intended) for short-term results. Look towards fund companies that will stand up to the test of time.

The public image of the fund families you select for your company 401k plan will affect its popularity among your employees. As with other consumer products, mutual funds (and the companies that produce them) come in various shapes and sizes, with reputations and brand-name recognition to match.

Remember to consider…

-- Is the mutual fund company forthright?
If the company doesn't frankly discuss the potential drawbacks of an investment along with its attributes, go elsewhere.

-- Does the company follow a disciplined approach to investing?
Some companies do not ensure that their fund managers stick to the investment strategy described in the prospectus. Even the fund's portfolio name may be misleading; it may not reasonably represent the interlaying of stocks and bonds in the portfolio.

-- Does the company promote the recent fund performances?
You need to know how a fund has performed over the past three, five, ten years. Its performance during the last 24 months is inconsequential.

-- Does the company put experienced managers in charge?
How many years of experience does the manager have? What's his/her track record? Some companies allow relatively new managers to gain experience with their smaller funds.

The above are guidelines to help you select investments for your 401k plan that will encourage participation and effective retirement saving while ensuring that your company meets the federal mandates regarding 401k plan investment diversity.

We're here to help if you're still unsure of how to proceed with choosing investments for your 401k plan. Send an e-mail to info@401keasy.com, or call 1-800-660-0050.