It’s never too late to revisit allocation strategy
Schwab’s Catherine Golladay, Charles Schwab’s SVP of 401(k) Participant Services & Administration, offers her top six tips to start your clients’ year on the right foot. Reprinted with permission. Visit here.
January 27, 2017 — Research shows that just 8 percent of people achieve their New Year’s resolutions, which can add up to trouble for those who resolved to get their finances in order.
We’re just a few weeks into 2017, but this is the time to double down on financial resolutions that can pay dividends down the road. Catherine Golladay, Charles Schwab’s Senior Vice President for 401(k) Participant Services & Administration, offers the following tips to help 401(k) savers start the year on the right foot:
Restore Balance
We’re coming off of one of the strongest stock market rallies in recent years. While you may have seen a bump in your balance, the rally could have also left your asset allocation out of alignment with your risk tolerance. Financial and energy sectors performed particularly well in the market after the election, while consumer staples and utilities did the worst.
Golladay says: “While your 401(k) is a long-term investment and you shouldn’t make drastic changes every time there is volatility in the market, the new year may be a good time to rebalance so that your investments reflect your risk tolerance and other preferences. Also make sure you’re not overloaded on company stock: as a general rule, company stock should make up no more than 20% of your 401(k) portfolio.”
Review Beneficiary Designations
If you made a major life change in 2016, like getting married or divorced, or having a baby, this is a good time to take a look at your beneficiary designations.
Golladay says: “Make sure your 401(k) beneficiary designations are in line with your current situation. By law, if you’re married, your spouse is your beneficiary automatically unless he or she waives that right.”
Revisit Old 401(k)s
If you’ve switched jobs in the past few years, you might still have money sitting in a 401(k) from your previous employer. Take a fresh look at your older accounts and decide what you want to do with them.
Golladay says: “When it comes to what to do with an old 401(k), there are a few options available, including rolling it into an IRA, moving it to your new plan or leaving it alone. If you choose to leave it alone, make sure your investment options reflect your current preferences and risk profile.”
Watch Out for Fees
Many people resolve to spend less money in the new year. When it comes to your 401(k) plan, you may have access to index funds or ETFs that have lower investment management fees than actively managed funds.
Golladay says: “Make note of any low-cost index mutual funds or exchange-traded funds on your plan’s menu. These types of funds often have lower investment management fees, so investing in them can mean putting less of your savings toward fees and putting more into your account.
Call In A Professional
According to a recent Schwab survey, only 44 percent of 401(k) participants feel very or extremely confident making 401(k) investment decisions on their own. But with the help of a financial professional, that number jumps to 74 percent.
Golladay says: “If you’re uncertain about how best to manage your 401(k) in the new year, don’t worry – plenty of help is available. Many 401(k) plans offer access to professional 401(k) advice, which can aid with things like asset allocation, setting contribution levels and more.”
Catherine also states, “Our survey found that, for most people, a 401(k) is their largest or only source of retirement savings. Your 401(k) is a long-term investment that you’ll contribute to and maintain throughout your career. While January is a great time to revisit your allocations and other settings, don’t forget to make periodic adjustments as you go.”
Excerpt from the Schwab Survey
According to the survey, the 401(k) is either the largest or only source of retirement savings for most respondents. Ninety percent call the 401(k) a “must-have” benefit and would think twice before accepting a job that didn’t offer one.
However, merely participating in a 401(k) plan is not enough. Only half (51%) of respondents feel totally on top of their 401(k) and more than one-third (35%) are stressed about choosing the right 401(k) investments.
Many participants can do more to maximize the benefits of a 401(k), but face obstacles. For example:
- Despite experts’ advice that participants should periodically increase their 401(k) contributions, one-third (34%) have not done so or have actually decreased their contributions in the past two years.
- 32 percent say the number one barrier to saving more is an unwillingness to sacrifice things that add to their quality of life, like dining out or vacations.
- Only 10 percent of participants are currently using professional 401(k) investment advice.
According to the survey, 401(k) participants feel that having professional assistance may help improve their financial situations, with the majority of participants (70%) saying they’d like personalized investment advice for their 401(k) plans.
