Category : 401k

3 Lessons Your Ruined March Madness Bracket Can Teach You About Investing

And so it begins…the one month of the year where a single college basketball tournament costs employers a collective $1.2 Billion for every hour of lost productivity. And it’s fantastic!

At blooom, we’re big believers that we can find investing lessons in nearly every aspect of our lives, which brings me to my point in writing this. Regardless of what your tournament bracket looks like right now, as the surviving teams march on toward the Final Four, there are several lessons on investing that we can take away from all the madness.

1. Analysts are as Clueless as Everyone Else

No one can possibly have enough time to watch every regular season college basketball game. Unless they get paid to. Expert forecasts are a trusted source for anyone filling out a bracket. But if the pros are always getting it wrong, how can the casual fan have any hope? That’s the point.

The financial media has made millions on the ancient art of fortune telling. No matter how many times they get it wrong, market analysts have made careers out of making random predictions that are usually very wrong. It seems like it takes just one correct guess to achieve the prestigious “guru” title on CNBC. A great example of this is the rise of Marc Faber, aka “Dr. Doom”. He’s a regular on CNBC that is best known for his ability to accurately forecast major market downturns. However, the funny thing is that he has been wrong far more often than he’s been right. If you repeat the same gloomy predictions over and over again, of course you’re going to get it right and cash in big at some point. Does that make him a prophet? No. It makes him a great salesman. 

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You Can Catch-Up to Get Back on the Retirement Track

This article from 2016 has been updated with information for 2018

The more you can save in your 401k while you’re working the better off you’ll be building your retirement nest egg. I believe I can take off my Captain Obvious cape now. You need more than empty words to help you get on track to retirement and there are tangible actions you can take if you need a 401k catch up.

Although a recent study in InvestmentNews points out 45% of Americans indicate they are on track to reach retirement goals, which is an increase from 38% from the 2013 study, that still leaves many workers coming up short when running the projections for their future retirement account balance. There could be a number of factors that contribute to the shortfall: starting too late, not taking full advantage of a match if offered, taking money out of the account for non-retirement purposes or using investment options that were too conservative or, most likely, some combination of all. But you’re in luck, whether you are just starting out or you can see the retirement horizon from your office chair, there are things you can do to ramp up your retirement savings and catch-up.

If you’re young, you have time to make changes to the way you’re approaching retirement savings without much damage to your end result. You can increase your contribution rate, even just a percent or two, and set up automatic increases annually to get back on track. In 2018 the limit on 401k contributions is $18,500. If you need a calculator to help you determine what percentage to set your contribution rate (also called deferral rate) to reach the maximum, there are plenty out there; I like bankrate.com retirement calculators. Keep in mind, depending on your status in your company, or the plan’s stated rules, you may have limits on actually reaching this maximum amount. For instance, you could be limited if you’re considered a Highly Compensated Employee (HCE) or if your employer’s plan has a limit on the contribution percent you can set up. You can check out your employer’s plan documents to determine the specifics that matter to you.

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Flu Shots to 401(k)s

Flu Shots to 401(k)s: It’s Time to Bridge the Gap Between Health and Wealth in the Workplace
It’s no secret that your local pharmacy loves this time of the year. As temperatures cool and the year begins to wind down, over-the-counter drugs start flying off the shelves. It’s the start of flu season, and for employers, that means more employee absences, poor productivity, and higher healthcare costs.

Although the flu is a highly contagious virus that nearly every workplace will be exposed to in the next few months, there are ways to limit the flu’s impact – like the flu shot. Encouraging employees to get flu shots is one basic example of a way to improve employee wellness. Offering incentives that encourage healthy living can also limit the flu’s impact. This is not news. In fact, most companies fully understand the value of promoting healthy lifestyles for employees and have therefore introduced wellness programs. Better employee health means lower healthcare costs, better morale, and better productivity. It all makes sense. But as wellness programs focusing on physical wellness have been around for a while now, it’s the financial wellness programs that have often been neglected. But that could be changing…

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I Guarantee that….

In the financial industry, most advisors are trained at a very early age to essentially remove the word “guarantee” from their vocabulary. For obvious reasons, when investors are dealing with managing portfolios that have any exposure to the stock market, there is never such a thing as a guaranteed return. If you want guarantees, you generally look to a Certificates of Deposit (CD) with FDIC protection or US Treasury Bonds that are guaranteed by the full faith and credit of the US Government (all jokes aside). So uttering the word “guarantee” anywhere in the same vicinity as a discussion about stock market investments is totally off limits.

Well, I am going to run head-on into the forbidden term and come right out and guarantee you something. I GUARANTEE THAT IF YOU HAVE A PROPERLY DIVERSIFIED PORTFOLIO THAT YOUR ACCOUNT WILL LOSE VALUE OCCASIONALLY.

That’s right, I said it and I will say it again. I GUARANTEE THAT IF YOU HAVE A PROPERLY DIVERSIFIED PORTFOLIO THAT YOUR ACCOUNT WILL LOSE VALUE OCCASIONALLY.
When you have a properly diversified portfolio, it means that a portion of your account will be invested in the stock market (likely both US and International markets). There has never been a period greater than a few months where a diversified portfolio didn’t lose value. Markets never just go straight up. And while historically the decline in value is temporary, it does happen and will continue to happen. Over the years, I have often told our clients that it isn’t IF your account will lose value it is WHEN and HOW MANY TIMES it will lose value over an investor’s lifetime.

Now before you start to panic I want to digress and point out that there is a difference between losing value v. losing money. As stated above, your 401k will drop in value from time to time. But for you to actually lose money in your 401k takes an additional action on your part. It is only when you sell while the market is down that you are taking the temporary decline and making it a permanent loss. That is when you lose actual money in your 401k, not simply when the market declines. (For further explanation on the difference between losing value v. losing money read my blog, If You Don’t Sell You Don’t Lose.)

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Target date funds miss the mark

Why Target Date Funds Miss the Mark

First, let me give this disclaimer: Target Date Funds are a great solution if the alternative is leaving your retirement money in a Money Market Fund. That said, there are three problems with almost all Target Date Funds inside of employer sponsored retirement accounts (like 401k and 403b plans).

What is a Target Date Fund?

Target Date Funds were meant to it simple to invest for a specific date in the future – like the year you retire. In theory, an investor can select the Target Date Fund with the year closest to when they are planning/hoping to retire. For example, a 35 year old planning to retire at age 60 might select a 2040 Target Date Fund. This single fund election is comprised of a few individual Mutual Funds to give instant diversification across asset categories: Large Company Stocks, Small Company Stocks, International Stocks, Bonds, Money Market, etc. Target Date Funds automatically adjust the risk profile of the fund (the weighting of stocks vs. bonds) inside the portfolio as the years progress. So, a 2040 Target Date Fund may have 80-90% of the portfolio in stocks, but by 2039 it will likely have adjusted the ratio closer to 50% stocks and 50% bonds/money market. This happens automatically for the investor, without them doing anything on their own. In theory, it seems fairly intuitive and a decent strategy for retirement saving. Now let’s discuss the shortcomings.

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