401k ? insured?

Question

I have been warned to not put all my eggs in one basket, specifically, do not keep all of my retirement money in the same account. They claimed that the money I put in is not insured in case the company I have it with (in this case Principal) happens to close shop. Is this true? What are some opinions?

Answer 1

That is just not true.

The company has nothing to do with the 401(k), they make their contribution, and then the investments are available for you to manage at the brokerage firm.

Virtually all brokerage firm have the **** insurance, so whatever goofy stuff goes on in the brokerage firm's business, you are garanteed to have the mutal funds / stocks / bonds, that you owned.

Note that **** is different than FDIC. With ****, you are garanteed to recover the securities you had. That doesn't garantee anything regarding the value of those securities.

Answer 2

No, 401K's are not insured. However, the closing of the company that runs the plan (in this case, Principal Financial Group) would not result in losing your investment. If youinvest your 401K in mutual funds within the plan, you continue to own the fund shares, even if Principal Financial Group closes. However, you do lose money if the fund shares decline in value. To minimize this risk, you may decide to invest in funds that invest in insured bonds and/or funds that invest in government bonds. This is less risky than invested in stock funds. Most 401K plans offer both types of funds.

Answer 3

It's not true except in certain circumstances. You 401k plan is held by a plan administrator. These are often investment banks or brokerage houses. For example, mine is held with Fidelity and within it I have a number of stocks and mutual funds. You contributions are deposited directly into that account and do not reside with your company. If the company goes under, you still have your 401k.

Here is the exception. If your company mandates that a certain percentage of your 401k be held in company stock, or gives you matching funds in company stock only, you could lose it if the firm goes under. Such is the case at Enron. Employees were encouraged to keep all of their savings in Enron stock. When that became worthless, they suffered. The rules of diversification stil apply to company stock.

Answer 4

You need to be concerned about diversification. Your 401K allows you to invest in various funds, index accounts, and other securities. You just need to research each one and know what you are buying. They all carry risk, but higher risk may mean higher returns.