Tips to Help You Manage Your 401k – Ep 08

Does managing your own 401(k), 403(b) or Deferred Comp plan intimidate you? The decisions you make have a huge impact on your long term results. Today is the first part of a two part series. We’ll offer some basic tips for your 401k.

Video: Tips for Your 401k

Watch Part 2


      Mistakes To Avoid in Your 401k

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Tip 1: Asset Allocation

Asset Allocation describes how you mix the major asset classes in your account. How much you invest in stocks, bonds, cash and other assets will determine your returns. And it will determine how much your account fluctuates in value.

When investing, you make a trade off. Assets like stocks offer a lot of potential for return. But it comes with some wild swings in vlaue.

Investments in bonds or cash limit the volatility. But they don’t provide many opportunities for growth.

Tips for your 401k
Tips for your 401k
Tips for your 401k
Tips for your 401k

Tip 2:  Keep it Simple

Many plans offer a lot of different choices. It is tempting to own many different funds. But, owning 15 different stock funds doesn’t mean you are diversified. Identify a small handful of funds to build your account. Try to use between four and eight different funds for your allocation.

Tip 3:  Pay Attention to Costs

Every fund in your retirement plan has an expense ratio. This is how the fund company makes money. Some funds cost more than others. Expense ratios are often stated as basis points. A basis point equals 1/100th of one percent. Expenses eat into returns. Funds with higher costs have to earn more than the lower cost options to create equal returns for you. When possible try to use the lower cost options.

Tip 4: Don’t allocate too much to company stock.

Many plans allow you to buy the stock of your employer. Owning too much of your employer’s stock can increase your risk. A good guideline is to own no more than 10% of the stock in your account. Your employer may be doing well today, but things can change. History shows a lot of examples of companies who were doing well and then were suddenly worth nothing.

Want a second opinion?

We would be happy to help you look at your plan.  We will offer some tips for your 401k plan.  Simply click the button to contact us.