r/FinancialPlanning • u/kujorocks • 1d ago

Putting money in 401k with very limited investment options vs buying etfs in brokerage account.

I work for a company that gives 3% of our salaries into 401k whether I contribute to 401k or not. I am in my late 30’s and I have been maxing out for most last 5 yrs. The investments in 401k are not cheap. The cheapest and only option we have is Fidelity Total stock market fund. The rest are target funds which i have no interest in it. Does it make sense to just put that savings into brokerage account and use ETF like SCHG and save there instead of contributing to 401k? I understand the tax benefits of 401k but thinking getting better returns and better options to invest might offset the tax benefits.

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u/kaithagoras 1d ago

Fidelity total market fund is up 25% in the last year. Plus you got 100% match on 3%. Plus you're getting upfront tax benefits of 20%, 30%, maybe more depending on your income.

Figure out how much actual dollars you're saving between the match and the tax savings, then think to yourself "Can I beat that /outside/ of my 401k?"

I have a sneaking suspicion that the fees (that you inconveniently don't quantify with actual numbers) aren't nearly high enough to make this math equation work in your favor outside of your 401k. Unless your hope is to bet on individual stocks that beat the market, in which case, you will lose long-term regardless of matching, tax-savings, or fees.

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u/kujorocks 1d ago

The reason for my post is I only invest in etfs and one of my favorite etf is SCHG, which is up 143% in last five years meanwhile Fidelity total stock fund is up 82% and 39% vs 26% ytd..so that’s what caused me to ask this question…if i invest in etf that consistently beats the broad market 5-10% or more on average…in long term i think I would be better off going with SCHG in brokerage…but I still have to do the math..

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u/kaithagoras 1d ago

Something you might want to consider if you're stuck on picking your own investments like SCHG would be to either open a Traditional IRA or Roth IRA and put 7k into one of those that you would've otherwise put in the 401k (or better yet, do both 401k and IRA if you can). This way you're still getting tax benefits that you wouldnt get from a brokerage account, it's still a retirement account so you're less likely to cash in on a whim, but you have more control over your investment options.