Money Matters, Simplified.
Set It, Forget It, Regret It
I can't tell you how many 401(k) participants I've talked to over the years who given me some variation on this phrase: "I set my investment allocations when I started working here, but I haven't really paid any attention to it since."
Folks, that's not good.
Now, the news in those cases isn't always bad. If your initial choices were, say, three low-fee stock index funds, and you're still 10 years or more from retirement, you might be fine. There's definitely room for improvement, but you're not too far off course.
But too often, people choose the hot aggressive equity fund of the moment. One favorite I saw in lots of plans 10 years ago was Fidelity Aggressive Growth Fund , which was shooting out the lights on the strength of RealNetworks (Nasdaq: RNWK), Qwest Communications (NYSE: Q), Amgen (Nasdaq: AMGN), and a lot of market darlings of the moment … a whole lot of which don't even exist anymore.
It doesn't take much to turn a high-flying growth fund into a long-term subpar performer. One market crash and several manager changes later, that's exactly what Fidelity Aggressive Growth is now -- and has been for years.
But I'll bet there are an awful lot of 401(k) participants who still have all or most of their money in that fund, and in other flash-in-the-pan funds like it, because they haven't revisited their investment decisions in ages.
With the topsy-turvy market conditions we have nowadays, it's particularly important to be smart about this stuff. Fortunately, it's easy to get smarter, and it doesn't take a lot of work to get back on track.
Keep it simple, but not too simple
Being smart about managing your retirement portfolio doesn't mean turning yourself into a day trader. You don't need an at-home trading station, a Barron's subscription, or a big stack of Jim Cramer books. If you have an Internet connection and an hour or two to spend maybe twice a year, you're all set. Just follow these steps:
Most retirement-plan providers have online tools to help you come up with an asset allocation plan, although for liability reasons, many of those plans tend to be overly conservative or otherwise flawed.
If you'd like a better starting point, the best retirement asset allocations I've seen lately are in the new issue of the Fool's Rule Your Retirement newsletter -- it's a paid service, but you can get no-obligation access with a 30-day free trial.
Don't forget your IRAs. Your 401(k) is only part of your overall retirement savings portfolio; IRAs almost always have much greater investment flexibility than workplace savings plans do. If your 401(k) is short on good investment options, you can and should use the IRAs to get into the asset classes your plan doesn't cover well.
You may not -- probably won't, actually -- nail your desired asset allocation exactly. But getting as close as you can is still a big improvement.
Watch, but not too closely. Check in every six months or so to make sure things are on track. Don't be afraid to make changes if they're needed, but keep a long-term mentality, and don't let the bumps in the road freak you out. When your portfolio creeps away from your target allocation -- and it will -- don't sweat it. You should rebalance occasionally, but there's no need to do it more than once a year, if that. If one sector is growing more quickly than the others, being overweighted in it is probably a good thing, no?
Stay informed. Make a point of paying attention when your benefits department announces changes to your plan. Contribute as much as you can, and make funding your IRAs a priority. And don't be afraid to seek expert help when you need it.
Even if you don't want to deal with the time and expense of hiring a professional investment advisor, expert help from time to time can be invaluable. The Fool's Rule Your Retirement newsletter service is a great middle ground.
For about the same price an advisor would charge you for a get-acquainted session, you can get a full year of the best Foolish thinking in the retirement-advice business -- plus access to a members-only message board staffed by professionals who can help you with the hard questions specific to your situation. Intrigued? Be our guest for 30 days, with no obligation.
Copyright © 2008 Universal Press Syndicate.