Everybody has that thought. You hear news about another poor day in the stock market, which makes you reflect on how that is impacting your 401(k) retirement savings. You also receive your quarterly retirement account statement and see how it has decreased in value over the past quarter, which frustrates you. That is not the time for such a rash decision to start moving all the money around between funds in your 401(k) retirement account. Your retirement account is built for long-term increases in value. Regularly moving balances between the various funds in your retirement account will undermine the long-term retirement goals that you have established for yourself. That doesn’t mean you should completely ignore your retirement account. It is important to review the quarterly statements received from your plan’s custodian to monitor your investments and make it a point to at least annually review your retirement investments to ensure they are in line with your long-term retirement goals.
There are many reasons why it is important to do this at least annually. There may have been changes in your life recently, whether it is buying a new home, having children, or reaching a milestone birthday that impacts your current retirement goals and investment mix. Also, your plan sponsor occasionally may alter the funds available under the plan. They may have replaced a fund you are currently invested in with another fund that is said to have the same investment strategy. However, the new fund may not exactly match the composition of investments needed to align with your retirement goals. It would be wise to make that determination as soon as possible in order to minimize the time your funds are in an investment mix that is not right for you.
There are many available options to assist you with analyzing your current investment mix in relation to your retirement goals. Often, your plan sponsor utilizes an investment advisor for the plan who is available to sit with participants to discuss their goals and determine the proper 401(k) investment mix. These investment advisors may visit your workplace at certain times of the year; however also make themselves available when participants have investment questions. The plan’s custodian may also provide a representative to visit your workplace and discuss investment related questions as well as other questions you may have related to the plan. The custodians also often provide tools on your plan’s website to help you evaluate your investment goals and select funds in the retirement plan portfolio that work for you.
Furthermore, you can take a proactive approach in evaluating the funds offered in your 401(k) retirement plan. If the plan sponsor plans to alter the makeup of your 401(k) plan, you should stay informed of the process and get involved if you can. You should also evaluate if there are too many investment options offered. This may be a sign that your employer, as trustee, isn’t doing enough to select the proper blend of investment options for the plan participants. They may be just selecting all that are available and letting the participants sort it out. If that is the case, you may want to talk to your employer about evaluating their investment mix as part of their fiduciary responsibilities.
As you can see, there are a number of ways to have an active say in your long-term retirement goals. Reviewing your quarterly statements and making it a habit to evaluate your investments annually will go a long way in assisting the long-term performance of your investments.
Jonathan Poppel, CPA