This is the promised follow up to last week's "The Retirement Gamble" e-newsletter.  

If you read "The Retirement Gamble" newsletter, you know that a very high percentage of 401(k) plans are, well, "lousy" to "really awful".   Sorry to deliver this news. Those drinking the 401(k) industry kool-aid will dispute this conclusion.   I am happy to support my conclusion and look at your plan - just give us a call.

No matter how lousy is your company's 401(k) plan, you want to get the best return while your hard-earned money is imprisoned there.

All of our clients get better returns in their 401(k) plans than their co-workers.  How?  We give them asset allocation advice as a part of our overall service.

Important caveats: 

• It's not simple or easy to create the best portfolio possible inside your 401(k) plan. Be careful with the "general group suggestions" provided here. Questions? Confused?  Call us.
• Every 401(k) plan is different. We see lots of amazing (amazingly bad) things inside plans.  You may encounter something not covered  here.

Helping our clients with their 401(k) is one of the dirtiest jobs we do.  It's not pleasant.  To an aficionado of high quality funds, it is a very distasteful process.  It's like trying to choose the "least rotten apple".

Here are the "rules" that you need to apply while building your 401(k) portfolio.

1) Get as diversified as possible across U.S. large to microcap stocks, non-U.S. developed countries large to small and emerging markets using the fewest funds possible.   (Funds that overlap DETRACT from diversification not add to it!)

2)Within each asset class, choose the fund with the best qualities:

a) most holdings (higher # of securities held).

b) less turnover

c) lower expense ratio.

d) The best answer will be an index fund or passively managed fund if available.  (Be careful, the name of a mutual fund is a part of the marketing of the fund and often to fool you as to what they really are.)  You may not have a passive fund option.

3) Worth repeating - avoid fund overlap.  Don't have two U.S. large cap funds for example.  By definition fund overlap detracts from diversification.  You want maximum diversification.

4) Unless you are over 60 or 65 and retired, keep your equity percentage at least 80%.  Call us if you have questions on the percentage to place in each asset class.

5) Make sure existing and incoming assets are balanced to the same proportions.  Re-balance about once/year. 

6) Important to Avoid: a) stable value fund, b) high yield "junk" bond funds, c) money market, d) all in one "target" funds based on a retirement year or age.

Stick to the program.  Don't let severe market drops or euphoric market rises change your behavior.  Pay attention to plan changes. Sometimes changes are made that reallocate your portfolio and you receive no direct warning.

When you leave the company, immediately remove your 401(k) assets and roll them over into an IRA.  Get access to low cost passive funds.  We can help you directly or indirectly if you want to do it yourself.   You can't do as well as us, but you'll do far better than in your 401(k) plan.