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Financial Planning / Foolish 401(k)s

URL:  https://boards.fool.com/lti-see-that-index-funds-are-encouraged-in-12366149.aspx

Subject:  Re: index funds in a 401K Date:  4/8/2000  3:45 PM
Author:  ZZFly Number:  7309 of 26295


<I see that index funds are encouraged in fool.com's survey of 401k's. Why would one have a very tax-efficient vehicle in a tax-deferred account? Wouldn't it be better to have index funds outside the 401k and have funds that have higher turnover and short-term capital gains in the 401k?

Thank you for your response.>

The primary purpose of investing in an index fund is not tax efficency - it is the efficent market theory.

Specifically, historically few managed funds outperform the market - therefore one should invest in an index to obtain a market return rather than one earned by a managed fund.

It is highly desirable to utilize an index fund in most retirement plan portfolios.

The question you may want to ask - is it best to purchase the index fund inside my 401(k) or my IRA. If your 401(k) uses a vendor which applies asset based fees to supplement billed employer fees to support the cost of the plan you will loose some of the advantage provided by the index fund. You may be better off placing you IRA contribution into the index fund.

Just a thought I how this helped


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