Give Your 401(k) a Checkup

October 27, 2017

Amidst the hustle and bustle of everyday life, many workers don’t have the time or energy to monitor their 401(k) account (or other retirement plan). While too much tinkering can be problematic, the temptation to “set and forget” your 401(k) funds should also be resisted. For many of my clients, I encourage periodic “check ins” with their retirement plans – at least once a year. Here are some things to keep an eye on:

 

  • Contribution Rate: Are you taking advantage of your company’s full contribution match? Think about increasing your contribution to maximize your employer’s match; failing to do so leaves valuable compensation on the table. If you’re already fully matched, think about giving your retirement a raise. A 1% increase in contributions might not be noticeable in each paycheck, but can make a huge impact over the long term, thanks to compound growth.
  • Asset Allocation: Is the mix of stocks and bonds in your portfolio still appropriate for you, or have things changed significantly since you made your initial elections? Think about your time horizon, risk tolerance, and goals for retirement. If your portfolio is too aggressive, or not aggressive enough, consider a change to your target asset allocation. You should also keep an eye out for un-invested cash or consider an automatic investment program within your plan.
  • Rebalancing: Depending on the structure of your plan, your account may or may not rebalance automatically. Check to see if market movement has caused the asset allocation to drift significantly. Consider taking advantage of an automatic rebalancing tool if it is available. Periodic rebalancing will honor your asset allocation needs while reflecting the realities of global capital markets.
  • Investment Selection & Fees: Request the most recent listing of investment options for your plan, including a summary of all associated fees. As the retirement landscape changes, new and more cost-effective options may become available within your plan. Being mindful of costs is one way to promote long term growth in your portfolio. You may also discover investment vehicles, not previously available, which more appropriately satisfy various wedges of your target asset allocation.

 

Of course, there are always other considerations: diversification, portfolio performance, Roth/pre-tax contribution options, etc. Don’t let the variables overwhelm you. Focus on the quick (and important) factors I’ve outlined here to make sure you’re on track. As always, contact us if you have questions on any related topic.

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