how to invest


career, food, travel


saving, credit, debt


insurance, security


401K, IRA, FI, Retire

Home » 401K

Does your 401k Plan Offer the Elusive Self-Directed Brokerage Option?

Last updated by on January 1, 2016

The other day I was searching through the 401k section of my employer’s intranet and was shocked and delighted to find that employees are now offered a self-directed brokerage option through Vanguard. I have been asking for this option for over a year, when I found out that these accounts even existed. Not surprisingly, there was no publicity on the matter (and you’ll see why as you read on).

What is a Self-Directed 401k Brokerage Account?

First, let’s consider your typical 401k account. Most employers have a standard 401k that offers anywhere from 10-20 mutual funds within it. Most of these funds are a combination of:

  • carefully chosen funds by your employer and plan administrator to limit your risk for liability issues if you lose money.
  • funds pushed upon your employer by your plan administrator for whatever reason (sales kickbacks, low assets in their own funds, etc.).

self directed 401kA lot of the times, the funds selected are decent options for the uneducated, beginner, and even intermediate investor. But if you’re an experienced mutual fund investor, having only 10-20 funds to choose from can be somewhat limiting. For a young and experienced investor who wants to add a little more risk due to the many years of investing ahead, the limited options can be downright suffocating.

A self-directed brokerage account option simply opens the door to more fund options so that you can more freely choose where to place your assets and how to distribute your risk.

What a Self-Directed Brokerage Cannot Do

At least in my experience, I am still limited in the types of investments that are available to me. For instance, I’m still not able to invest in CD’s, money market accounts, individual stocks, REIT’s, precious metals, bonds, company stock, options, etc. I’m strictly limited to investing in mutual funds, and not every mutual fund in the world. If you want to become a day trader with your retirement account, it’s not going to happen, and you shouldn’t be allowed to get into a brokerage option.

If a Self-Directed 401k Sounds Appealing to you…

First, check to see if your employer has one. In my research, I discovered that less than 20% of employers do. If your employer does offer it, don’t expect them to be vocal about it. This type of account is an option that is for those who are looking for it, not the masses. Do some digging.

If your employer does offer a brokerage option, be honest with yourself about your investing skill level. There is good reason why most people are very limited in their fund choices. If you fall into that category, there is no shame in that, you’re with the large majority.

If you have the option and want to move forward, carefully read all of the fine print. There most likely will be higher fees involved, especially if you switch in and out of funds often. Make sure that you’re doing it for the right reasons and being smart about your choices.

Self-Direct Brokerage Account Discussion:

  • Does your employer offer a self-directed 401k option?
  • If so, did you know about it before this post?
  • Would you like the option, or are you content with what you are currently offered in your 401k’s fund selection?

Related Posts:

About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • Jeremy says:

    Ours does, but I don’t use it. Our fund lineup in the 401k itself is already pretty good, and even includes an institutional variant of the vanguard S&P500 index fund at a very low 0.05% expense ratio. So, given that and the rest of our institutional fund lineup, I’d be hard pressed to find cheaper funds unless I was really looking for some sort of specialty investments.

    But this post brings up a good topic, and people might be surprised at the features of their accounts if they take the time to look. Most employers aren’t active in promoting the various products and services in their account, so you might be pleasantly surprised.

  • Ethel says:

    My employer has one, and I don’t use it (but knew about it – it was publicized via email when it was added). I’ve considered switching so that I could get a standard S&P 500 index fund, but haven’t had the energy to check thoroughly to make sure there isn’t one already in the options available to me (if it’s there, I didn’t see it at first glance).

  • Broke MBA says:

    My company does not. I work for a segment of a for profit company that will be spun off into a small non-profit. It looks like my 401(k) will be replaced with a Simple IRA. Not sure what choices I’ll be presented with, but I’m sure they will be limited.

  • Scott says:

    Most companies do not offer self directed because of the liability and secondly the expense. That being said, a 401k with 100 mutual fund choices is no more effective than one with only 15 to 20 funds. Mutual funds have a history of being redundant, meaning that you may be investing in the same companies although you are in several different funds. A true self directed retirement plan is one that allows all choices of investment, not just a ton of mutual fund picks that allows you to “switch” all the time. And yes, the cost of moving your funds around will destroy your account balance from the fees alone, not to mention the fact that switching your investments constantly from one investment choice to another will probably result in you “chasing” after returns. Or trying to “get in” when its to late only to realize losses. Bottom line is that self directed retirement plans are perfect for being able to truly diversify into other asset classes not normally available in traditional plans. But one should still remember, that once diversified, one should not fall prey to “chasing returns. Rebalancing should be done bi-annually. If the self directed option is not available you can start your own Roth or Traditional IRA and accomplish the same goal. Using ETF’s as a starting point.

  • Felix says:

    is your employer liable if thiere is no money market accounts to put your money in untill times get better.

  • Scott Deegan says:

    Felix…your employer is by law required to offer some type of money fund as a choice.

  • AHB says:

    My company offers the self-directed 401(k) option and allows me to invest in individual stocks and mutual funds. It’s great.

  • pat says:

    It is YOUR money. You earned it and you should be able to invest it however you want.

    I only found one company in my industry that offers a self directed 401k, and I get to pick my own individual stocks…and I’m ripping it up.

    Americans are such sheep that they will take whatever measly options their employers give them on how to invest their own money. The bossman acts like it is his money on the line. YOU ARE THE ONE WHO EARNED IT. IT SHOULD BE YOUR DECISION ON HOW IT GETS INVESTED.


Enter your:

Home | Sitemap | Terms | ©