Stress Test Your 401(k) for Fees and Performance With Two Free Online Tools

NEW YORK (MainStreet) — Kendrick Wakeman, CEO of Boston-based FinMason, believes individual American investors face a grave enemy: the pie chart. You often see them on the top of your brokerage or 401(k) statement. Wakeman says these charts represent analysis that Wall Street feels is really useful but Main Street feels is completely useless.

"There are somewhere between 3 and 6 billion asset allocation pie charts generated in this country every year, and the collective effect is almost nothing," Wakeman told MainStreet. "We did a survey, a random sample of 1,000 investors, and two-thirds of them couldn't derive any information about their portfolio through a pie chart."

The problem, he says,  is that investors can't derive a sense of risk or return by looking at an asset allocation pie chart. And that goes for geographic analysis charts, industry breakdowns and other investment segmentation data graphs. An investor simply wants to know: how much can I expect to make from my holdings, and perhaps even more importantly -- how much do I stand to lose?

"With 401(k)s, now a lot of people are basically accidental investors," Wakeman says. "They're being forced to invest -- that's not what they would be doing normally with their life."

In January, his investor education company launched "Finspector," a free online tool that analyzes 6 million investments, including over 24,000 mutual funds, based on scenario analysis.

"It's basically just telling people, in plain language, how their portfolio should perform under different scenarios -- or future possible scenarios," Wakeman explains. "For example, we'll show them 'this is how your portfolio probably behaves in a strong market, this is how it probably behaves in a weak market. This is kind of what you would expect in a normal market -- and this is how your portfolio should behave in a crash.'"

He contends that having an investor face the possible losses of their specific portfolio in a worst-case scenario helps him understand the trade-off between risk and reward. By reducing the downside risk in investments holdings, investors come to realize that they are also minimizing potential gains.

"As you de-risk your portfolio, your upside disappears," Wakeman says. The tool displays all of the potential outcomes of an investor's holdings on one page: from best-case to worst.

"It's all about trade-offs," he says. "And so what ends up happening is, if they decide they want to take their crash scenario to zero [risk], we also show their estimated retirement savings and they'll see that drop precipitously. Now they understand the difference between risk and return in a very tangible way."

Users can enter individual holdings into the system or allow the system to import positions from their investment accounts, as well as compare holdings to sample portfolios of varying degrees of risk. Seeing the impact of good and bad future markets on the relative return of your investments -- as well as the projected dollar value of your retirement savings -- is a real wakeup call for many investors, Wakeman says. But while the tool analyzes the specific investment holdings of a user, it does not make recommendations.

"Our premise is, there are a lot of people you can go to for advice," Wakeman says. "We help explain your portfolio to you in an independent, unbiased way. We won't tell you what you should buy or shouldn't buy, we can't -- we don't know anything about you, we don't even know your name,"

Consumers fundamentally want to understand their portfolios and understand the advice that they're getting -- from their broker, from their brother-in-law, from an online tool with their 401(k). Cutting through the noise can be the difficult part.

"It's not so much a lack of advice out there," Wakeman said. "it's a lack of confidence over which advice is right and which is not right."

With confidence that your portfolio is properly positioned with investments that are right for your risk appetite, there is one more matter to attend to: the issue of fees.

Claiming to help navigate the murky waters of financial charges is a free online tool called FeeX, aiming to be the "Waze of investment fees." In fact, one of the co-founders, Uri Levine, sold Waze, the crowdsourced navigation app, to Google for $1.1 billion in 2013. Now he and three other partners, including CEO Yoav Zurel, are looking to map out financial fee roadblocks.

"No one knows how much in fees they are paying," Zurel told MainStreet. "Basically, if we don't know what we are paying, this means we are already paying too much."

Zurel says investors in America paid about $600 billion in financial services fees last year. And many times, these charges are expressed in a percentage rather than in easy-to-understand dollar amounts. Not knowing how much you pay is one thing, but nearly half of working Baby Boomers in a recent survey believed they didn't pay any fees at all in their retirement account.

"The 401(k) industry last year took $35 billion in fees -- and even more shocking, the average American household will pay $155,000 in 401(k) fees," Zurel says. "So you think it's free but it actually costs you like about [the cost of] a house in most of the U.S. It's crazy."

FeeX analyzes the expenses imbedded in a portfolio, expresses them in dollars -- and then shows the impact of compounding those fees over a user's working lifetime.

"The fact that you are paying 1% this year, and 1% next year, and 1% three years from now -- so 30 years from now we're talking about one-third of your savings that will get lost to fees," Zurel says.

The tool not only exposes the fees but how to reduce them, by showing investments similar to those in your account but with lower fees. If your investment holding is a good performer with low fees, Zurel says the tool will conclude, "Great job, you have the best fund available." Fund recommendations made by FeeX are not compensated so the investment options offered can remain objective.

"We need someone, or some tool, just to reassure us that either we are paying a lot and there are easy ways to pay less or that everything is great and they can continue on with their life," he adds.

Zurel says FeeX has already garnered about 25,000 users since its U.S. launch.

-- Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick

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