The past 12 months have been like a roller coaster ride through an economic horror show.
On the downhill slope, we have seen brokerage and bank failures, a contentious presidential election, an $800 billion stimulus package and we hit the bottom in March when GM and Chrysler filed for bankruptcy. On the uphill slope, we have been teased by “glimmers of light.”
Like most people you have probably been holding your head down while the economic roller coaster has been twisting, turning and going through its gyrations. This has been a gut wrenching trip, but like most good roller coaster rides, we may be close to getting back to the station. No wonder you’ve had neither the time nor the inclination to look at your 401k statements.
Where is your 401K?
If your 401k retirement account is like most, it is probably down about 20 percent from a year ago. Go on-line or look at your last statement and answer a few questions:
How does the total value compare to a year ago?
What are your percentages of equities/stocks, bonds and cash?
How do these percentages compare with your desired percentages of each?
What percentage of the total is in your company’s stock?
Are you satisfied with the overall performance of your account and the allocation of your investments? If not, you may be ready for a 401k makeover.
401K Makeover
If your company uses one of the large 401k service providers, such as Fidelity or Vanguard, then the process is fairly straight forward, using the portfolio review systems available on their Web sites. If your 401k plan does not have a portfolio review system, then you may want to meet with your financial advisor or use the review system on Web sites such as: www.moneycentral.msn.com; www.quicken.com; and www.mint.com. Most of the portfolio review systems have three basic steps and may take you about an hour to complete.
Life Cycle Funds
Using Life Cycle Funds is a simpler way to manage your 401 k retirement fund. To select a life cycle fund all that is required is your age, planned retirement age and the current year. In the early years, the life cycle funds invest more aggressively. As the individual approaches retirement age, the fund invests more conservatively.
Completing your 401K Makeover
To complete your 401k makeover, you may want to consider two other areas:
Contribution rate- Invest as much as possible in your 401k retirement account, since the contributions are made pre-tax and the gains accrue tax deferred. At retirement, withdrawals will be taxed at ordinary income tax rates. The minimum contribution should be at the level that will trigger the maximum employer match.
Company Stock- Many financial advisors encourage clients to limit their investment in their employer stock to no more that 5-10 percent of their net worth. If the company has financial difficulties, your job may be at risk, as well as your retirement funds.
Many of the economic indicators are pointing to an end of the recession, either later this year or in early 2010. Review your 401k to make sure it is in line with your financial objectives.
Michael G. Shinn, CFP, Registered Representative of and securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to shinnm@financialnetwork.com. ©
