SOURCE: Smart401k.com

January 21, 2008 09:30 ET

Ten 401(k) New Year's Resolutions From Smart401k.com

OVERLAND PARK, KS--(Marketwire - January 21, 2008) - Many people have made at least one New Year's resolution to get their finances in order. Yet due to the fact that the benefits of 401(k) investments often aren't realized until years down the road, many people don't take stock of their 401(k) when evaluating their current financial situation. However, as with everything else financial, your 401(k) investment requires regular attention and nurturing. That's why we've created a list of 10 retirement plan investing "do's" and "don'ts" for 2008 and beyond:

DO

1. Regularly review (2-4 times per year) the performance and management of all your plan investment options. Two key things to look for:

--  Consistent performance versus other funds that invest in similar
    investments, like large company growth funds.  Consider picking funds that
    have outperformed their peers each of the past five years.
    
--  Fund Management changes.  A mutual fund manager picks which companies
    a fund invests in or sells.  A fund that has historically performed well
    may perform differently under a new manager.  You can access detailed
    performance information on your funds through websites like Yahoo! Finance
    (http://finance.yahoo.com) or Google finance (http://finance.google.com).
    

2. Pay special attention to new funds added to your plan. New funds are often placed in 401(k) plans to replace underperforming funds. These new funds have likely just been evaluated by your employer and therefore may be good options to include in your account.

3. Re-adjust your portfolio so your investment allocations match your desired level of risk. An investment allocation refers to how you divide your assets across different investment types (i.e. bonds vs. large cap growth vs. small cap value). Allocations that have a higher percentage in money market and bonds funds are generally less risky than allocations that contain higher percentages of equity-based funds (particularly emerging market, international and small cap funds). How you set your investment allocation should correspond with how much risk, or volatility, you are comfortable taking in your portfolio. If you aren't comfortable doing this yourself, check to see if your plan has an advice option or look into using a service like Smart401k.com.

4. Match up your current and future contribution percentages. For some reason, many investors are tempted to set their future contributions differently from how they invest their current savings. This will likely alter your allocation and result in a higher or lower level of risk than you intended.

5. Take the time to educate yourself on how to invest for retirement. The web is full of sites such as MSN Money (http://moneycentral.msn.com) and Yahoo! Finance's Personal Finance section (http://finance.yahoo.com/personal-finance) that offer a wealth of financial and investing information. If you don't have the time or desire to personally manage your account, we suggest you check your plan to see if it offers an advice service. Typical options are Target-date funds (all you need to do is estimate when you will retire and the rest is done for you) or independent services, such as Smart401k.com, which considers both your risk tolerance and time to retirement.

DON'T

6. Pour all your money into funds that returned the most last year. This strategy can be hit or miss and will likely increase the overall risk of your portfolio. It will also surely throw a diversified portfolio approach off-kilter. "Chasing returns" is one of the biggest mistakes the average investor makes.

7. Try to act like a professional day-trader with your retirement savings. Day-traders are professional investors who watch their investments constantly and make trades several times a day in order to profit from intraday price changes in specific stocks. In contrast, retirement investors should be focused on long-term investing and should not try to time short-term market movements.

8. Over-invest in your company stock. Many 401(k) investors are over-invested in company stock, which is usually one of the riskiest investments in a 401(k) plan. Remember, a mutual fund diversifies you across a number of companies, whereas company stock is dependent on the performance of a single company. Most advisors, Smart401k included, suggest that you should limit your investment in company stock to 10% or less of your total retirement plan investment.

9. Completely avoid risk... especially if you're not close to retirement. Sticking everything in a money market may guarantee that you won't lose any money, but it also guarantees that you will not fully participate in any growth the stock market experiences. From January 1926 through September 2007, the annualized total return for the S&P 500 (frequently used as a measure of the US Stock Market) was 10.51% per year (source: S&P) -- significantly higher than the average annual return of money market funds during that period. If you can afford the time to ride out shorter-term market volatility, it probably makes sense to have some exposure to equity-focused funds.

10. Hesitate to change your investments to take a more conservative strategy if you can't sleep at night. If the ups and downs of your current investments are creating high levels of stress, reduce the level of risk your investments are exposed to. It may help to do some reading on investment risk to manage your concerns, but when it comes right down to it, your current health is more important.

About Smart401k:

Smart401k is a leading web-based 401(k)-advice service that focuses on providing individually tailored advice to employer-sponsored retirement plan sponsors and participants. The company currently monitors more than 4,000 employer plans and advises individuals who collectively have more than $1 billion in plan assets. Smart401k advisors take pride in helping clients navigate their 401(k) plans and are accessible by phone at (877) 627-8401 or by email at info@smart401k.com. For more information on Smart401k's employer and advisor services, please contact Scott Holsopple directly at (913) 744-3378 or by email at sholsopple@smart401k.com. Smart401k is headquartered in Overland Park, Kan.

Contact Information

  • Contact:
    Elaina Boudreau
    (913) 660-0548

    Scott Holsopple
    (913) 744-3378