Reduce Fees in Your Walmart 401(k) by Building Your Own Portfolio

Managing and investing in the Walmart 401(k) Plan is one of the most important financial decisions for many Walmart and Sam's Club associates. However, an important aspect often overlooked is the investment management fees embedded in your 401(k) account, which you might not even be aware of. These fees can range from hundreds to thousands of dollars per year, depending on your account size. Over time, these costs compound, significantly impacting your retirement savings.

In this article, I'll explore the benefits of building your own 401(k) portfolio compared to choosing the Retirement Date Funds offered in the Walmart Plan. While it's understandable and the best choice for many to opt for the convenience of Retirement Date Funds, this hands-off approach comes with trade-offs in the form of higher fees and less control over your investments.

What is a Retirement Date Fund?

In the Walmart 401(k) Plan, Retirement Date Funds are branded as "myRetirement Funds". These investment products simplify the investment process for participants by automatically adjusting the asset mix as they approach retirement. Younger participants start with a higher allocation to stocks for growth and gradually shift towards bonds and other lower-risk investments to preserve capital.

The benefit is a single fund option for your 401(k) investment allocation that rebalances automatically. While convenient, this convenience comes at a cost. Below are the investment options in the Walmart 401(k) Plan including the myRetirement Funds on the bottom half of the list.

The Cost of Convenience

Retirement Date Funds typically carry higher expense ratios compared to individual index funds (top half of the above list). In the Walmart Plan, Retirement Date Funds charge on average 0.22% per year, compared to 0.02% for passively managed individual index funds.

While the Retirement Date Funds in the Walmart Plan are relatively inexpensive compared to other plans out there, they're still more costly than the individual index funds, which are the primary building blocks of the Retirement Date Funds.

The annual incremental expense of a Retirement Date Fund strategy ranges from hundreds to thousands of dollars per year depending on the account balance.

Over time, these costs compound, resulting in a 401(k) worth much less. For example, a 35-year-old with a $100,000 401(k) account balance who contributes the maximum each year could see their account worth over $100,000 more after 30 years by building their own portfolio, as savings from lower fees are reinvested and compound.

Building Your Own Walmart 401(k) Portfolio

Let's replicate the myRetirement 2050 Fund using the lower-cost individual index funds. Below are the target allocations for the various myRetirement Funds offered in the Walmart Plan.

By replicating the myRetirement 2050 Fund with individual index funds, the annual expense drops from 0.23% to 0.06%. Below is an example of how you could replicate the fund.

U.S. Equity (57%): BlackRock Russell 1000 Index AND BlackRock Russell 2000 Index / Fee = 0.01%

International Equity (31%): BlackRock International Equity Index / Fee = 0.03%

Real Assets (11%): Real Asset Fund / Fee = 0.45%

Fixed Income (1%): BlackRock Bond Index Fund / Fee = 0.02%

Furthermore, by managing your own portfolio, you have the option to exclude the relatively expensive Real Asset Fund (0.45%) and shift those funds to another low-cost index fund, lowering the annual expense ratio to 0.02%.

Other Benefits to Managing Your Own 401(k)

The Right Allocation for You: Retirement Date Funds shift their investment allocation heavily towards bonds over time resulting in less volatility in exchange for lower expected returns. However, if a participant has wealth outside the 401(k) such as in a taxable account and/or deferred compensation plan, it may make sense to invest the 401(k) more aggressively in stocks in exchange for a higher expected return.

Staying Connected to Your Savings: Also, managing your own 401(k) keeps you more connected and involved with your savings. While it's not necessary (or beneficial) to constantly check your 401(k) balance, reviewing your allocations and rebalancing annually helps you stay engaged with your savings and planning for the future. This is a healthy habit, especially for younger people.

Retirement Date Funds are one of the most successful innovations in this industry over the last several years. They help a lot of people save and invest for retirement! But the benefits of building your own 401(k) portfolio are lower fees, more control over your investment allocation and a stronger connection to your retirement savings.

If you have any questions or want to see if working with a financial planner makes sense for you, feel free to reach out or schedule a quick intro call using the link below. I'm happy to help.

Let's Connect

Thanks for reading,

Mark Chisenhall, CFA, MBA

Taurus Financial Planning

Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.