Tag Archives: 401k fitness

How Rebalancing Your Investments during a Bear Market Works for Your Retirement

If you ask me, rebalancing has to be one of the Wonders of the World.  Ok, well maybe at least one of the Wonders of the Investing World.  The term “rebalancing” (or “optimizing” as we call it at blooom) gets loosely tossed around and often even taken for granted, but I hope to explain its elegance and how rebalancing investments can go such a long way to improving an investor’s long term rate of return.  More specifically, by leveraging the power of optimizing, especially in down markets, it is entirely possible to build more wealth in your investment portfolio over time.  

Now that I have your attention, let’s look under the hood at how this whole optimizing thing really works!

 

Take Emotion Out of It 

By far, one of the biggest enemies of the average individual investor is their own emotions.  Generally speaking, mixing high levels of emotions into financial decision making will generally turn out disastrous, regardless of how good the underlying intentions might have been. Emotions will lead us astray whether it is greed commonly experienced in periods of very strong growth in the stock market, or fear often experienced in periods of steep declines in the stock market.

The most effective way to counter the potential damage that managing your investments based on emotion can cause, is to just simply have a plan. Then, once you have a plan, to the extent possible, you should try to implement a strategy that “automates” decision making so that you minimize the chances that emotions can creep into your decision making. In fact, some of the best laid plans when it comes to investing are ones in which you have to make as few decisions as possible!

Let me explain.

 

3 Things You Should Do With Your Investments Right Now

When it comes to your retirement savings – either inside of your employer sponsored retirement account (401k, 403b) or your IRA – you need to commit to a well thought out strategy that has been battle tested not over the course of just the past few years, but over the past many decades.  When it comes to your retirement savings, because of the inherent long term time horizon that you should have, there are really just a few key things to get right.

  1. Make sure you have an appropriate mix of stocks and bonds given your time horizon to retirement and your risk tolerance.  With this, there is no “one right answer” but it is definitely possible to get this dead wrong.  (Example: 30 year old who wants to retire at age 60 with 90% invested in bonds)
  2. Make sure this mix of stocks and bonds is routinely adjusted to move slightly more conservative as you move closer and closer to retirement.
  3. Make sure you have enough diversification across your stock and bond exposure.  In other words, make sure you don’t have “too many eggs in too few baskets!”


Then, Don’t Touch It

Once you have this established, I can tell you confidently that you shouldn’t be tinkering too much with this set up.  In other words – get this dialed in and there is virtually  no need to be fiddling with it based on the inevitable ups and downs of the stock market.  This is where investment rebalancing comes in and starts to really shine.

An Example Portfolio

For ease of explanation, let’s assume that based on your age, time horizon to retirement and risk tolerance, you have the following allocation in your retirement account:

$100,000 Portfolio

Stocks: 70% Target allocation = $70,000 

Bonds: 30% Target allocation = $30,000

Now let’s assume that the stock market gets absolutely clobbered, down roughly 30%.  Which by the way, is about the average decline the stock market has experienced in the past dozen or so Bear Markets since WWII.  Remember, Bear Markets are a totally normal and expected event that inevitably comes around from time to time either due to economic cycles, bubbles, or significant external events like what we are currently experiencing with the global pandemic.

In our example here, let’s also assume that while stocks were getting clobbered, the bond side of your portfolio largely held its value.  In this case, your allocation could then look like this:

Stocks: $50,000 – 62.5%

Bonds: $30,000 = 37.5%

Often times, investors are inclined to make emotional decisions out of fear (in this case) and might actually consider SELLING OUT of stocks after this big decline. BUT, this is where optimizing can swoop in and save the day.

If you are following a regular, recurring strategy of rebalancing your investments let me show you INSTEAD what would take place

Now that your portfolio has dropped in value to $80,000 and stocks now make up just 62.5% of the portfolio as opposed to the original target allocation of 70% that you originally established.  To then properly rebalance your account back to the original Target allocation into stocks you would need to SELL some of your bonds that had held their ground and BUY more stocks at these depressed levels.  PRECISELY WHAT INVESTORS SHOULD BE DOING!  It is amazing how in times where the stock market is chugging along making new highs, most investors jubilantly pour more and more money into their portfolios and then conversely, when the stock market goes “on sale” many investors’ emotions kick in and then all rational thought goes flying out the window and fear takes over.

But when you allow the power of an automated optimizing strategy to just do its thing, it prevents emotions from creeping in and taking over.  You are not having to make decisions at all during these times.  The automated optimizing process handles all the heavy lifting and by just doing math, it automates the process of proper decision making over and over and over, throughout the course of your investing career.  

Oh, and conversely – an automated optimizing strategy also works quite well in times of growth in the stock market.  As stocks and the stock market are making new highs, automated optimizing will trim some of the profits in stocks and add to bonds, or other kinds of stocks in your portfolio that have fallen a bit behind.  Again, just letting mathematics handle the decision making process in your portfolio.

 

See “Buy Low, Sell High” in Practice

What I love most about utilizing an automated optimizing strategy is that by default, it forces investors to follow that age-old practice of buying low and selling high.  Slowly and surely, over time, portions of your retirement portfolio are shifted from the investments or asset classes that have performed well over to the investments or asset classes that haven’t done as well.  Little by little over a long period of time this adds up to extra return in your account and most importantly, gets you out of your own way when it comes to emotional decision making.

 

Reap the Benefits of Rebalancing Your Investments with Blooom

Now that you have read why rebalancing your investments is important, consider optimizing your portfolio with blooom! Our goal is to give you a solid chance to improve the allocation of your account and maximize your portfolio. Sign up today for a free analysis and see how rebalancing your investments with blooom is a no brainer!

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Piggy bank with gold medal

How Blooom Uses Olympic Skills to go for the 401k Gold

In just a few days the Olympic Games will get underway: The world’s best will be going toe to toe to determine who will take home the gold. Did you know that getting a gold medal pays? For US athletes, it means $25,000 into their bank account. Not too shabby…

$25K is a great payday, but you don’t have to be a determined Olympian to optimize your finances. After all, blooom estimates that its average client saves more than $41,000 in hidden investment fees alone over their working careers*.

Lessons from Olympic athletes

Piggy bank playing hockey

Athlete: Ryan Zapolski

Discipline: Men’s Hockey

401k tip: Blocking hidden fees

 

As goalie for Team USA, Zapolski’s job is keeping the puck out of the net. The more the opponents score, the harder everyone on his team has to work to win. Likewise, when investors are incurring high fees, their investments have to work double time to make up for money that’s being taken out of the account. Just like Zapolski does with the puck, blooom works to keep hidden investment fees out of your proverbial 401k net.

Piggy bank curling

 

Athlete: Nina Roth

Discipline: Women’s Curling

401k tip: Risk tolerance

 

In curling, the goal is literally to get as close to the target as possible. The same goes for retirement. When Roth throws her curling stone, she has to make sure she throws it aggressively enough to reach the target, but not too hard—risking missing it completely. As the stone gets closer to its goal, her teammates work to direct the stone down the perfect path. When you tell blooom your glide path (years to retirement), we adjust your investments and risk accordingly, to help you hit your goals.

 

Piggy bank figure skating

 

Athlete: Nathan Chen

Discipline: Men’s Figure Skating

401k tip: Diversification

 

Chen might be known for his vaunted quad jumps, but it’s not all he does on the ice. He also skates gracefully, mixing in other moves like the camel spin, step sequence and the Salchow. Like a balanced, diversified portfolio, Chen knows it takes more than just one move (or fund) to win the gold.

Piggy bank on a skeleton

 

Athlete: Kendall Wesenberg

Discipline: Women’s Skeleton

401k Tip: Rebalancing

 

When Wesenberg is flying down a patch of ice at over 80 MPH, she knows it’s the little tweaks, like a tilt of the head or shift of the shoulders, that make the difference between winning and losing. The same goes for your 401k. While your path to retirement doesn’t move nearly as fast as the skeleton, blooom regularly makes small tweaks to your investments. This helps your 401k get on the medal podium when you cross the retirement finish line.

Piggy bank speed skating

 

Athlete: J.R. Celski

Discipline: Men’s Short Track Speed Skating

401k Tip: Getting professional help

 

Short track speed skating is riddled with obstacles and other competitors to knock you off track… or out of the race completely. Knowing how and when to react will be an important factor in Celski’s ability to win the race. Much like the chaos of the short track, the stock market goes up, down and all-around over the course of a person’s lifetime. Having a trusted partner to help you read what’s happening and make sense of it all can be the difference in making the right move or crashing out of the race.

Ready to join the team?

Get the 401k Gold

Becoming an Olympian is hard work and so is having a great 401k. Luckily for you, rocking your 401k isn’t an individual sport. Linking up your 401k to blooom is like joining the Dream Team.
U-S-A! 401k!

 

* $41,456 investment fee savings based on median blooom client 401k balance of $47,131. Assuming $5,000 annual contribution, pre-blooom investment expense ratio of .56%, post-blooom investment expense ratio of .22%, and 30 years until retirement as of January 9, 2018. Blooom is limited to the funds available in your employer sponsored retirement account. There is no guarantee blooom can or will reduce your fund expenses.

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Your 401k Workout Plan

Forget your pecs. This year, invest in something that could actually get better as you get older! Make sure your company-sponsored retirement account is in tip-top shape to conquer the new year and beyond with these easy exercises.

Exercise 1: Match it pound for pound.

Just contributing to your 401k is a HUGE step in the right direction. So, pat yourself on the back for taking that leap! If you really want to make strides, muscle up and meet your company match. (It’s basically free money.)

 

 

Exercise 2: Stretch out your dollars.

Retirement is a marathon, not a sprint. Make sure you’re invested in the right mix to meet your goals. Maximize the distance, while protecting yourself against big injury to your account as you get closer to retiring.

 

 

Exercise 3: Avoid heavy lifting.

If you’re not properly trained, attempting to overhaul your 401k could be dangerous! A wrong move could be a real toe crusher. Luckily the independent experts at blooom are here to spot you when you’re ready.

 

 

Exercise 4: Sweat the small stuff.

Hidden fees and management percentages may seem small now, but by the time retirement hits could mean the difference of hundreds of thousands of dollars. Make sure you are minimizing the fees in your 401k.

 

Does a 401k exercise still sound like too much effort? Outsource the workout with blooom.

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