It is probably fair to say that most folks know that a company-sponsored retirement plan is one of the most powerful weapons they can have in their investment arsenal. Yet we know that many are stressed out about their 401(k) plan. Why? Because while a company might provide a way for you to save for retirement, its job is not to help you manage the investment risk in your account.
No one will argue how important and necessary a 401(k) plan is for retirement, but with such a beneficial investment opportunity comes inherent risks — from choosing appropriate funds to understanding hidden fees. So, what can you do to ensure your 401(k) is working hard for your financial future and is not carrying too much risk?
Here are a few potential 401(k) risks and ways you can avoid them:
- Improper Allocation: 401(k) values can rise and fall with the markets, meaning they offer no protection from loss — no matter how soon you need the money. The key to avoiding this risk is to maintain the proper asset allocation for your risk tolerance level. Examine the investment options offered by your company and be sure diversify your choices consistent with your risk tolerance.
- Turning on Autopilot: Because of the many decisions that come with starting a 401(k) account, many people employ a “set it and forget it” method with their plan. In a matter of a few years, those who neglect their 401(k) may realize that their account no longer reflects their risk tolerance. Take the time to create a 401(k) strategy and check in with your account to rebalance on a regular basis.
- Lack of Investment Guidance: While a robust lineup of investment options is good, too many can easily confuse and overwhelm investors. Without sufficient investment knowledge, employees may choose a little of each and end up with a portfolio that is not diversified or appropriately aligned with individual needs.
So, are you on track toward your retirement goals or do your strategies need adjusting? We encourage you to check with your advisor to make sure your retirement strategy can get you where you want to go when you want to get there. Check out Shelton Capital’s library of 401(k) Educational Videos to help you make good choices and stay on a good retirement track.