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Brokeragelink investment options

Do you have the option in your Fidelity 401(k) to activate BrokerageLink? If so, this is a great additional feature that most 401(k) plans don’t allow. How do you determine whether it makes sense to use this feature or stick to your traditional 401(k) investment options that have been picked by your employer? My strategy guide will walk you through the thought process.

BrokerageLink is the option within Fidelity 401(k) plans to open up a brokerage account inside the 401(k). This special brokerage account opens up access to a massive amount of investment choices. These can be used in tandem with your standard 401(k) investment options or your plan may allow you to allocate 100% of your 401(k) balance into your BrokerageLink account.

Not all BrokerageLink 401(k)s at Fidelity have the same rules though, your employer may limit certain types of investments or even the percentage of your 401(k) that can be added to your BrokerageLink account.

Be sure to check out the BrokerageLink pros and cons towards the end of this strategy guide.

Here is a link to Fidelity Brochure on BrokerageLink

*Level Up Financial Planning is not associated with Fidelity, but work with many clients who utilize the BrokerageLink option within their 401(k).*

Choosing BrokerageLink is not a “no brainer”. There are few pieces of criteria to identify to see if it is the right fit for you:

Do you know the #1 Mistake When Choosing Your 401(k) Investments? This is a critical video to watch if you plan to use the Fidelity BrokerageLink feature in your 401k!

Time

Other than money, time seems to be one of the other greatest constraints that we all face. Do you have the time to read through this strategy guide in full? Then do you have the time to go through the initial process of establishing BrokerageLink? After that, you will find that you may be overwhelmed with research and the mechanical nature of placing trades and keeping up with the management. 

One benefit of sticking on the traditional side of your 401(k) investments and not using BrokerageLink is it is pretty automated once you get it set up.

Investment Knowledge

Many of my clients daze over trying to choose from the dozen investment options their standard 401(k) plan offers on their own. If you are already knowledgeable on modern portfolio theory, then you may enjoy handcrafting your portfolio within BrokerageLink. 

Another factor that even those who consider themselves investment savvy have trouble with is truly understanding risk vs. reward. One of the dangers of BrokerageLink and the world of investment options that open up is that you may have access to more risky investments. 

Fees

Without seeing your specific standard 401(k) investment options, it’s hard to say if fees are higher or lower when compared to investments that can be found in your BrokerageLink window. Most likely you will have access to investments that have both lower and higher fees. You have to tap into your investment knowledge to determine if higher fees justify themselves in the long run or just a drag on your performance?

In recent years, employers have been better at reducing fees within their standard investment options. So if you have been utilizing the BrokerageLink feature for many years because of the access to lower-fee investments, that may have changed and is worth revisiting.

Employer Chosen Investments

The investment choices within your 401(k) have also improved drastically. It is quite possible that your employer has chosen investments that are awesome. At a minimum, most employers provide the option to choose investments from various asset classes. 

If you feel they are missing a critical piece of your desired portfolio allocation, then you can take the ones you do like and use BrokerageLink to shore up the weak points.

I have found that many standard employer 401(k) investment choices are limited when it comes to Bond Funds and International Investments. Many times, you may only have access to one of each of these asset classes.

Investment Size

How much money are we talking about? There are actually two sides to this argument:

  1. It’s not worth it to spend the time on a small balance.
  2. If you have a small balance, it may be helpful to develop your investment knowledge when the stakes are lower.

Some investment options within the BrokerageLink account have set minimum purchase amounts. Smaller balances may run into issues when building a customized portfolio because of those minimums.

  1. More choice. The fact that you have an additional option is a great feature for those who know how to leverage its’ benefits.
  2. Still tax-free. Even though it’s in a new brokerage account, that account is tucked under your employer’s 401(k). 
  3. Many free trade options. Even trades that are not free, the fees are reasonable with larger balances.
  4. Not all or nothing. You can piece together your perfect portfolio using your employer-provided options and the open world of BrokerageLink.
  5. Might be able to lower investment fees. You should be able to find extremely low-cost Index Funds or Exchange Traded Funds (ETFs).
Exchange Traded Fund Definition
  1. Mechanical setup. There are many additional steps to get setup.
  2. It requires more maintenance. Trades are not easy to set up to be automatic in between pay periods.
  3. Lack of rebalancing. Your traditional 401(k) has a simple rebalance process, but the BrokerageLink account does not.
  4. It’s the wild west. Fidelity and your employer have you agree (usually electronically) that you are responsible for your own investment choices. The degree of risk associated with investments can vary dramatically when you open up the BrokerageLink investment world.

When the option is available, we jump at the ability to create a more customized portfolio. Our goal is to build a more complete portfolio and most of the time we are able to lower their expense ratios. To combat a few of the cons mentioned above, I assist through a video meeting and screen share to help them with the initial setup so that they don’t have to worry about sucking up a whole evening or making a mistake. I am then able to monitor their investments and we set up quarterly meetings to deploy the new cash that accumulated. When these funds are deployed we are intentionally rebalancing their portfolio.

Did you know that most people who have all of their investments tied up within their 401(k) don’t have access to real financial planning? That is because most financial planners require direct access to your investment in order to apply their fees, which your 401(k) doesn’t allow. Level Up Financial Planning was created to change that!

Here are a few of the employers that I know who offer BrokerageLink within their 401(k) plans.

Let me know if you know of another employer and I will add them to my list!

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About Level Up
cfp fort collins, co

Lucas Casarez is a Certified Financial Planner™ Professional serving tech professionals virtually out of Fort Collins, CO

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