- The DIY investor enjoys researching investment options and in their free time can be found reading investing articles from The Wall Street Journal, Barron’s, Yahoo Finance, etc. This person may believe that paying someone for investment advice is completely counter-intuitive, since they are totally capable of doing it themselves for free. We joke that occasionally, these are the same folks (ahem, Men) who refuse to stop and ask for directions when lost. But that’s another discussion.
- You have enough coin to actually get the attention of a qualified professional investment advisor. Maybe you are a bit long in the tooth and have done a good job of saving money. Maybe you got an inheritance at an early age. Or maybe you’re a silicon valley stock-option millionaire. Whatever the case – my guess is that you have at least 6 or 7 figures in your portfolio and have the benefit of working with a qualified (preferably fee-only) investment advisor.
- You know you need help because you don’t have the time, desire, or knowledge to attempt to manage your 401k by yourself. You googled “401k help” and found 19 million entries. You have one of those know-it-all brother-in-laws but you just can’t bring yourself to flatter him by asking for his help. As a result, you’ve done your best to invest your 401k, possibly using one of those “one-size-fits-all” Target Date funds in your plan.
In our previous blog post we covered the first three tips you need to keep in mind when investing your 401k (for those of you that are dead-set on doing your 401k by yourself). In case you missed it, here they are: favor index funds, select the right stock to bond ratio, and diversify. And as promised, here are the final three tips:
4. Rebalance your 401k: In a nutshell, this wonderful tactic keeps your portfolio invested near the original percentages that you selected above in Step #3. Some folks do this manually, some custodians provide you with tools to help you set this up on a regular basis, and some folks hire professionals (like blooom) to do it for them. The beauty of rebalancing is that it trims from your funds that have done well and adds money to funds that haven’t. This may seem counter-intuitive but if you think about it for awhile is starts to make sense. Buy low, sell high. Buy low, sell high. Buy low, sell high…
So you have one of these “401k thingys” through your employer. Hopefully you have been socking money into it just like your Mom or Dad taught you. The balance has been growing these past 5 years but you still wonder if you picked the right investments that day you sat down with the enrollment paperwork with no 401k advice.
But you have this nagging feeling that you are in over your head.
Your Human Resources person won’t give you advice on whether you still have the right funds and you would ask the guy in the cubicle next to you (since he is always bragging about his investing prowess) but he is too much of a know-it-all to flatter him with your questions. It is hard to find 401k advice.
You tried calling the 1-800 number to the company where your 401k is being held – no help there either, just some confusing suggestions. Maybe you have even ventured online and googled “401k help” or “401k advice” but when the search returned over 17 million web pages you opted to check your Facebook page instead. Perhaps, you were brave enough to login to your 401k account and see if there were any tools you could use to help with all this. If you were able to work your way past all of the complicated Wall Street jargon, you might have found a tool to help you with you investment choices but in all likelihood, if you made it to the point of actually making changes to your portfolio – you left frustrated by how intimidating and confusing the interface became once it was time to pick your investments.
Rest easy my friend, you are not alone.
In the event that you set your alarm clock for PM instead of AM, and you missed our early morning presentation at One Million Cups, here it is!
We at blooom are occasionally asked why the recommended allocation from our proprietary glide-path includes (what seems to be) a rather heavy mix of stock funds over bond funds. Their question often stems from what I call the “Good Morning America” or “one-size-fits-all” allocation advice which carelessly recommends that you allocate the same percentage to bonds vs stocks as your current age. For example, if you are 33 years old – taking that advice for your 401k would mean you would allocate 33% to bonds within your portfolio. I am sorry, but when it comes to your 401k retirement savings – we think it is ludicrous for a 33 year-old (with possibly 25+ more years before retirement) to allocate 1/3 of their portfolio to an asset class that will most likely provide ZERO real return over the remainder of their working years.