How Much Risk Is In Your 401(k)?

How Much Risk Is In Your 401(k)?
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By Steve Harvey

 

If I asked you to describe your 401(k), would you be able to do it? Do you know how much money is in the account or how you’re investing it? If you’re like 63% of Americans, you’re completely confused about how retirement plans even work. (1)

 

401(k)s are one of the most common investment vehicles used for retirement planning. Because your retirement will likely span decades, it’s vital that you optimize your 401(k) for maximum growth. Don’t allow confusion to stand in the way of living your dream life in retirement. Today is the day to check your 401(k) and make necessary changes that will allow you to reach your financial goals.

 

One key thing you’ll want to look for in your 401(k) is risk. While you may not be able to completely cut risk in your retirement plan, you can make sure that it’s minimized. Here are 5 ways to reduce risk in your 401(k).

1. Consider Rolling Over Old 401(k)s

Most people switch jobs every few years. As a result, their 401(k)s often fade into oblivion. This is risky because those accounts may have very different investment strategies. A 401(k) you started in your 20s might mostly comprise stocks, while one in your 30s may have moderate risk. Consider rolling over these accounts so you can get a clear picture of your current investment strategy.

2. Choose The Right Portfolio Mix

Diversification is the key to reducing risk in your 401(k). Don’t put all your money in a few companies. Instead, spread your money out over hundreds of companies to lower your chance of losing money in the long run.

 

You’ll also want to choose a portfolio mix based on your current age and financial goals. For example, if you’re in your 20s and just getting started with investing, you may choose a moderate portfolio with 60% stocks and 40% bonds. If you’re nearing retirement, you may want a more conservative portfolio with 50% stocks and 50% bonds.

3. Select Investments With Low Fees

If you thought you didn’t pay fees in your 401(k), you’d be wrong. Fees vary based on the type of retirement account you have, but they can easily eat up a large part of your return. Some of these fees may be obvious, while others may be hidden. Some common fees include transaction fees, bookkeeping fees, and finder’s fees, to name a few. Choose investments with lower fees so you can keep more money in your own pocket for retirement.

4. Don’t Try To Time The Market

Most active traders garner the lowest returns. Between 1992 and 2006, 80% of active traders lost money, and only 1% of them were profitable. The takeaway? Don’t try to time the market. You’re guaranteed to fail. Instead, be steady and keep investing in your retirement account every month. If needed, rebalance your account once a year. There’s no need to do any more than that.  

5. Seek Guidance From A Trusted Professional

Retirement plans are confusing because there are so many options to choose from. Unless you’re an investment pro, you may unintentionally choose options that aren’t diversified and aligned with your goals. Protect your future retirement dollars by seeking help from a trusted financial advisor.  

 

At The Harvey Group, our goal is to help you create a retirement strategy that maximizes returns while minimizing risk. We can help you optimize your benefits and understand how your 401(k) actually works. To get started, contact us by emailing steve@steveharveyllc.com or calling (703) 549-5447. Or, if you’d prefer, simply click here to book an appointment online today!

About Steve

Steve Harvey is a financial advisor with more than 34 years of industry experience. He is also the founder of The Harvey Group, an independent investment consulting firm based in Alexandria, Virginia. He works closely with middle- and upper-middle-class families to help them address their critical financial planning challenges, from investing with confidence to planning for retirement. Based in the Washington, D.C. area, he works with clients throughout Virginia and Maryland. Learn more by connecting with Steve on LinkedIn or visiting www.steveharveyllc.com.

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(1) https://www.cnbc.com/2019/03/07/63-percent-of-americans-are-confused-about-401k-retirement-plans.html

Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.