Managing Your 401(k)
Managing your 401(k) takes work. Your administrator handles your portfolio’s actual transactions and the recordkeeping and reporting, but you decide when and how to reallocate and rebalance your assets.
Beyond keeping tabs on the performance of your portfolio, you will want to know your plan’s rules and procedures, and how much your plan and its investments are costing you. Take time to read your summary plan description (SPD), a document that lays out the rules, fees and procedures of your 401(k). Your employer should provide a copy of your individual benefit statement at least once every 12 month’s; though you may have to request it. You might want to review the document with your financial adviser or ask your plan administrator or human resources department about any details you would like clarified or explained in more detail. If you’re looking for guidance on the issues you should be concerned with, review the Department of Labor’s What You Should Know About Your Retirement Plan.
Get a Handle on Fees
All 401(k) plans carry asset-based fees and expenses that have a direct impact on your investment return and your long-term financial security. The difficulty is that it can be hard to calculate what fees are costing you because you don’t pay them directly by writing a check. Rather, they are subtracted before your return is reported. Your account statement documents the amount of money you actually paid for various services and investments expenses, so be sure to check it out. In addition, most fees are explained in your summary plan document (SPD). You can also ask your human resources or personnel department for an explanation. You can access more information about 401(k) fees and charges from the US Department of Labor’s online publication, A Look at 401(k) Plan Fees for Employees.
Although your fees cover the administrative services needed to manage your 401(k), it’s up to you to keep track of how your investments are doing. Refer to FINRA’s Evaluating Investment Performance section to learn more about different ways to measure performance, and how benchmarks such as key stock or bond indexes can serve as helpful reference points for assessing how well your portfolio is doing.
Read Account Statements
Another resource for managing your 401(k), and keeping tabs on how your investments are performing is your account statements. They contain details such as your account holdings, the change in value of your account from one period to the next, and other important account information.
Your employer must give you an account statement at least once every quarter. Many plan providers, however, send you statements on a monthly basis. You may also be able to access account information online.
The frequency with which you receive account reports might depend on how often your account is valued, or how often record keepers determine the total value of your account. Valuation also directly affects the flexibility with which you can reallocate your portfolio. If you decide to reallocate your assets, but your plan is valued quarterly, you may have to wait until the close of that period before your investments can be moved.
Don’t Forget to Rebalance
There’s a strong likelihood that over time your portfolio will get out of alignment. The investment allocation you started with (say 60 percent stocks and 40 percent bonds) will change—perhaps dramatically—and you will want to rebalance your asset mix. To learn more, including how target date funds can help you rebalance automatically, visit the Rebalancing Your Portfolio section of Key Investing Concepts.
Where To Look For Advice
You’re not alone when it comes to managing your 401(k). You’ll want to anticipate future returns as accurately as possible—and you may need the help of outside resources to do so. Luckily, there are a few places where you can look for advice.
- Your Employer and Plan Administrator. Your employer and the 401(k) plan administrator may offer resources to help you with your financial planning. Many provide educational material and seminars about retirement planning and saving. They also may provide access to investment advice for retirement online or through a financial professional. Most of these services are available at little or no cost to you.
- Online Resources. There are many websites that specialize in 401(k) advice. Most likely, these sites will ask you to provide information about yourself, such as the investments you own, your contribution rate, your financial goals, the age you would like to retire and the level of risk you’re comfortable taking.Online resources can offer a quick overview of your 401(k) portfolio. Just keep in mind that some of these resources will charge you for more personalized recommendations. And some sites sell their own investments, so you should weigh their recommendations against the profit they stand to make from your investment decisions.
- Investment Professionals. You also may want to consult an investment professional for advice. Ask any potential broker or adviser about his or her background and how they earned their credentials. Also ask for an explanation of their fees. Most importantly, check their backgrounds. FINRA BrokerCheck tracks the credentials of licensed brokers and investment adviser representatives.
The SEC’s Investment Adviser Public Disclosure website also allows you to search for information about investment adviser firms registered with the SEC or state regulators. You also can view an adviser’s Form ADV on the SEC’s website or by contacting your state securities regulator.