A self-directed brokerage account (SDBA) within a 401(k) plan opens the door to a world of investment options beyond the standard mutual funds typically offered by employers. This feature, often called a “brokerage window” or “brokerage-linked accounts,” allows participants to take control of their retirement savings by investing in individual stocks, ETFs, bonds, and other securities. SDBAs offer greater flexibility and the potential for higher returns by giving investors access to a much broader range of investment options. These include numerous excellent, ultra-low-cost ETFs and, depending on the brokerage, some high-quality no-load, no-transaction-fee mutual funds.
On the other hand, SDBAs also require careful management and a solid understanding of investment strategies. For those looking to diversify and personalize their portfolios, an SDBA can be a valuable tool to help reach long-term financial goals.
See Unlocking Investment Potentials With 401(k) Brokerage Link Accounts, for some detailed discussion on their pros and cons.
One of the key advantages of self-directed brokerage account for a 401(k) plan is that it enables investors to access to virtually all ETFs as ETFs are usually available in all reasonable brokerages, which is different from mutual funds whose availability varies widely across brokerages. Furthermore ETFs these days usually have lower expense costs than their mutual fund counter parts. In fact, some of the most popular ETFs such as Vangaurd S&P 500 ETF (VOO) has a whopping 0.03% expense ratio.
In the following, we list the top 15 ETFs that average retirement plan investors can readily use to construct a solid asset allocation portfolio in their self-directed brokerage accounts:
Stocks
Name | YTD Return | 1Yr AR | 3Yr AR | 5Yr AR | 10Yr Ar | 15Yr Ar | 20Yr Ar |
---|---|---|---|---|---|---|---|
VTI (Vanguard Total Stock Market ETF) | 2.83% | 22.38% | 11.41% | 13.77% | 12.84% | 14.16% | 10.49% |
VOO (Vanguard S&P 500 ETF) | 2.49% | 22.22% | 12.02% | 14.34% | 13.40% | NA | NA |
IVV (iShares Core S&P 500 ETF) | 2.57% | 22.31% | 12.04% | 14.36% | 13.35% | 14.38% | 10.47% |
VIG (Vanguard Dividend Appreciation ETF) | 3.06% | 17.21% | 9.76% | 11.51% | 11.81% | 12.79% | NA |
VEA (Vanguard FTSE Developed Markets ETF) | 5.00% | 9.10% | 3.78% | 5.95% | 5.77% | 6.38% | NA |
HEFA (iShares Currency Hedged MSCI EAFE ETF) | 4.72% | 15.52% | 12.02% | 10.38% | 8.89% | NA | NA |
VWO (Vanguard FTSE Emerging Markets ETF) | 1.91% | 13.87% | 0.32% | 4.05% | 4.01% | 4.15% | NA |
VNQ (Vanguard Real Estate ETF) | 2.86% | 13.99% | -0.54% | 2.97% | 4.90% | 9.69% | 7.24% |
Bonds
Name | YTD Return | 1Yr AR | 3Yr AR | 5Yr AR | 10Yr Ar | 15Yr Ar | 20Yr Ar |
---|---|---|---|---|---|---|---|
BND (Vanguard Total Bond Market ETF) | 1.25% | 3.67% | -0.99% | -0.50% | 1.32% | 2.27% | NA |
USFR (WisdomTree Floating Rate Treasury Fund) | 0.85% | 5.67% | 4.45% | 2.71% | 1.84% | NA | NA |
ICSH (iShares Ultra Short-Term Bond Active ETF) | 0.93% | 5.92% | 4.36% | 2.88% | 2.27% | NA | NA |
BSV (Vanguard Short-Term Bond ETF) | 0.72% | 4.60% | 1.66% | 1.26% | 1.31% | 0.86% | NA |
VCSH (Vanguard Short-Term Corporate Bond ETF) | 0.93% | 5.76% | 2.50% | 1.92% | 2.36% | 2.66% | NA |
For more detailed suggestions, refer to ETFs in Asset Classes page. Also refer to newsletter ETFs In Asset Classes For Portfolio Construction.