Who Manages My 401(k) And My Wife"s 403(b) And 457(b) Accounts?
The Problem - Un-managed Retirement Accounts In a recent study based on nearly one million participant 401(k) portfolios, 69% had inefficient portfolios and/or inappropriate risk levels.
Almost 50% of participants with company stock as a plan investment choice held high concentrations of company stock and 33% of all active participants were not contributing enough to their 401(k)s to receive the full employer match.
If your retirement plan is like most, the only person responsible for managing your account is you.
The Solution - Actively Manage It or Hire a Professional Would you casually raise a child, checking-in on her or him now and then to see how they were doing? Of course not, the same way you should not leave your retirement plan alone and hope everything works out in the end.
Either take an active role in researching and managing your account or hire a professional for the job.
Listed below are the top five retirement plan management mistakes investors make and how to avoid them.
1.
Inappropriate Risk Level Most investors are either ill-equipped or unprepared to select the investment options in their account.
The majority of the time they design an inappropriate portfolio.
As time marches on, your investments should change with your long term risk tolerance.
Adjust your portfolio to reflect your risk tolerance.
2.
Concentration in Company Stock Sure you are proud of your employer, but owning too much of its stock could leave your retirement nest egg in shambles.
Look no further than the employees of WorldCom, and more recently Lehman Brothers, to see how stock concentration can devastate decades of savings almost overnight.
Do not allocate more than 10% of you assets to any one stock.
3.
Not Researching Investment Options Most investors lack the time and skills to properly research each investment option.
Just when they buy that hot Internet fund, the Internet bubble pops and the fund value collapses.
The addition and deletion of investment choices only makes matters worse.
Regularly research each investment option, evaluating each investment relative to your risk tolerance and performance objectives.
4.
Not Managing the Account An un-managed account will invariably hit speed bumps or possibly a brick wall.
The risk metrics of sub-asset classes can become redefined, turning a once low-risk investment into a high-risk investment.
For example, the default rates on high yield debt have historically escalated during recessions.
Manage your account to reflect investment option changes and shifts in asset classes.
5.
Hiring the Wrong Manager If you hire a professional to manage your account, be sure the professional is not a 'professional thief'.
Unsure if the person is acting in your best interest? Have the person accept fiduciary duty in writing on company letterhead.
In doing so, that person is obligated by law to place your interests above and beyond their interests or their company's interests.
Note: most investment companies prohibit their employees from doing this, because they are obligated by law to act in their shareholders' best interest - not yours.
Often Overlooked - Employer Match If your employer matches your contributions $1 on the $1 up to 4%, contribute at least 4% and earn a 100% return.
That is not a misprint, as many retirement plans require the employer to provide a matching contribution.
Even if your employer does not provide a match, contributions to your account will earn you tax benefits throughout your career and thereafter.
By sheltering your income in your retirement plan you can actually reduce the income tax rate you pay on the income that is not sheltered.
Action Steps - Actively Manage It or Hire a Professional Don't let your hard earned savings go to waste.
Devote the time and resources necessary to manage one of your largest assets.
If you lack the time or expertise to manage your account hire a professional that will accept fiduciary duty in writing on company letterhead.
12/03/08
Almost 50% of participants with company stock as a plan investment choice held high concentrations of company stock and 33% of all active participants were not contributing enough to their 401(k)s to receive the full employer match.
If your retirement plan is like most, the only person responsible for managing your account is you.
The Solution - Actively Manage It or Hire a Professional Would you casually raise a child, checking-in on her or him now and then to see how they were doing? Of course not, the same way you should not leave your retirement plan alone and hope everything works out in the end.
Either take an active role in researching and managing your account or hire a professional for the job.
Listed below are the top five retirement plan management mistakes investors make and how to avoid them.
1.
Inappropriate Risk Level Most investors are either ill-equipped or unprepared to select the investment options in their account.
The majority of the time they design an inappropriate portfolio.
As time marches on, your investments should change with your long term risk tolerance.
Adjust your portfolio to reflect your risk tolerance.
2.
Concentration in Company Stock Sure you are proud of your employer, but owning too much of its stock could leave your retirement nest egg in shambles.
Look no further than the employees of WorldCom, and more recently Lehman Brothers, to see how stock concentration can devastate decades of savings almost overnight.
Do not allocate more than 10% of you assets to any one stock.
3.
Not Researching Investment Options Most investors lack the time and skills to properly research each investment option.
Just when they buy that hot Internet fund, the Internet bubble pops and the fund value collapses.
The addition and deletion of investment choices only makes matters worse.
Regularly research each investment option, evaluating each investment relative to your risk tolerance and performance objectives.
4.
Not Managing the Account An un-managed account will invariably hit speed bumps or possibly a brick wall.
The risk metrics of sub-asset classes can become redefined, turning a once low-risk investment into a high-risk investment.
For example, the default rates on high yield debt have historically escalated during recessions.
Manage your account to reflect investment option changes and shifts in asset classes.
5.
Hiring the Wrong Manager If you hire a professional to manage your account, be sure the professional is not a 'professional thief'.
Unsure if the person is acting in your best interest? Have the person accept fiduciary duty in writing on company letterhead.
In doing so, that person is obligated by law to place your interests above and beyond their interests or their company's interests.
Note: most investment companies prohibit their employees from doing this, because they are obligated by law to act in their shareholders' best interest - not yours.
Often Overlooked - Employer Match If your employer matches your contributions $1 on the $1 up to 4%, contribute at least 4% and earn a 100% return.
That is not a misprint, as many retirement plans require the employer to provide a matching contribution.
Even if your employer does not provide a match, contributions to your account will earn you tax benefits throughout your career and thereafter.
By sheltering your income in your retirement plan you can actually reduce the income tax rate you pay on the income that is not sheltered.
Action Steps - Actively Manage It or Hire a Professional Don't let your hard earned savings go to waste.
Devote the time and resources necessary to manage one of your largest assets.
If you lack the time or expertise to manage your account hire a professional that will accept fiduciary duty in writing on company letterhead.
12/03/08