In this week’s episode we are talking about the 7 steps you should take when choosing investments inside your 401k.
Show Notes:
- Step 1: What is your investment plan (i.e. investment policy statement)
- Includes goals and objectives
- How you will reach those through asset allocation, risk profile, financial goals, rebalancing method
- Percent in stocks vs bonds for target
- Going deeper how much in international vs US, growth vs value, real estate, short- term and intermediate bonds, cash/money market, etc.
- Growth, conservative oriented?
- Short-term and long-term goals want to / need to meet
- Strategy for rebalancing
- Goal of how much to put away. Dollar amt? Percentage?
- Do you receive any matching money
- Percent in stocks vs bonds for target
- Step 2: Look at 401k investment options
- Look at the expense ratio. Aim for 0.20 or below
- Look for word index fund
- Secondly, how do they fit into overall asset allocation
- Step 3: Put investment options in order
- From lowest expense ratio.
- Step 4: Review investment plan
- With investment options you selected with low expense ratios and/or word index review how it fits into your investment plan
- Write down next to each option whether it’s a stock or bond fund. What is your overall target asset allocation
- What fund(s) match your investment objective?
- What fund(s) are missing that you may need to fill with out accounts? (i.e. spouse accounts of 401k or IRA, your own IRA, taxable account)
- Step 5: Act
- Set up the desired amount to come out of every paycheck. Talk with HR
- Go at minimum up to the match
- Put away the goal amount to fund other accounts as desired and needed to.
- Step 6: Review and adjust
- Sticking to your rebalancing strategy review accounts and rebalance if needed
- Review annual notice information by investment company to see if any funds have been added or deleted and/or if expense ratios have changed
- Step 7: Raise Hell
- If you don’t like your investment options write a letter / talk with HR. Get a petition going
- From your list in step 4 what investment options were missing that you would like? What fund(s) that you are investing in or would like to are costing to much? Are they cheaper elsewhere.
- Might be that your HR person or boss just doesn’t know better. Keep in mind that this could benefit them to as they invest in the same 401k as you.
5 big items affecting your investment success
- #1 most important piece is savings rate
- #2 is asset allocation
- #3 is investment selection (diversification)
- #4 is costs
- #5 is to stay the course
Call to Action:
- Identify what you are invested in inside your 401k and what are your options.
Leave A Comment