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Consult your 401k representative: If you contact your human resources department, they're likely to provide some fact sheets on the investments in your plan but little beyond that. If you contact the 401k company, they'll likely do the same. I suggest contacting the plan representative. This is the person who comes to your office to present market updates and information specific to your retirement plan. He/she should be able to sit down with you in a private meeting to discuss your risk tolerance and time frame. From there he/she should be able to help you select some of the specific investments that you can use.

 

Do it yourself: If you find that your plan representative is not responsive or helpful, you may chose to select your own investments. Rather than simply picking the best performers for your portfolio, consider several factors. First, what is your risk tolerance? You should be able to go online and complete a brief risk-tolerance questionnaire that may provide some guidance to you as far as how much to invest in stocks versus bonds.

 

Second, does your plan allow for employer stock? Be cautious of investing too much into your company's stock in your 401(k). Think Enron, Worldcom, etc. While there's nothing wrong with believing in your company, you may want to limit your employer stock holdings just in case.

 

Third, how do you balance your plan's investments? Decide if you want to create a full portfolio balance (factoring in your other investments such as a rollover IRA, Roth IRA, or brokerage account) or to create a plan just for your employer sponsored retirement plan.   After you decide which route to take, contact your HR department for a listing of your investment options. You may also find this list in a recent account statement.

 

The investment options are likely broken down by asset classes (large companies, medium, small, international stocks, bonds, etc). Pick the investments that you believe will suit you best in each asset class that you need (per your asset allocation in step 1).

 

Annual Checkup: Just because you set the initial mix (either with the assistance of a professional or on your own) doesn't mean you can put the plan on cruise control and forget about it. Ideally you should do an annual review. Have the investment options changed? Do you now have too much in one asset class (or too little)? Has your risk level or goal changed? Just as you would with your car; do some fine tuning to your portfolio on an annual basis.

 

When doing your annual checkup, you may want to do a beneficiary review on your plan as well as your other employer benefits. Things in life change, and we often forget to make adjustments to our insurance and investment beneficiaries when we get married, divorced, or after someone passes away. Don't be the person who leaves their retirement plan to their college sweetheart instead of their spouse.

 

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual.  Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

Heidi and I will be celebrating our 12th wedding anniversary this month.  It's been an amazing time and so wonderful to have found my best friend in my spouse.

I hope you enjoyed this month's newsletter. 

Best Wishes,  

Woody Derricks, CFP®, ADPA(sm)

President  

Phone: 410-732-2633

Toll Free: 877-807-2633

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Web: PartnershipWM.com

Email: woody.derricks@lpl.com
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