While traditional employer-sponsored retirement plans have offered their participants a variety of mutual funds, and in some cases access to company stock -- the choices are still quite limited. The trend in 401ks is towards self-directed 401k offerings, with more and more employers offering these plans. Upwards of 25% of employers offer their employees a self-directed account option according to Hewitt Associates.
While these self-directed accounts work very similar to traditional 401k accounts, they do offer the ability to invest in non-traditional investments --- at least non-traditional for a 401k! You will see stocks and bonds, as well as commoditites, derivatives, and even buying on margin. The primary advantage these self-directed accounts offer is that their is an increase in the menu of available investments, allowing participants to find better performing investments.
This self-directed 401ks that many employers is not usually as liberal as it may sound. They may place limitations on what percentage of the account may be invested in non-traditional assets. A common guideline in many of these plans is that no more than 20% of the balance of the account can be invested in alternative investments.
Additionally, the employer sponsored self-directed 401k plans found at large companies typically have many rules and fees associated with them designed to protect the employer.
These negatives aside, the flexibility of self-directed 401k accounts through your large employer is a positive trend, continuing to empower the savvy executive looking to build weath.
