First and foremost – don’t pay extra for the advice! As part of a comprehensive investment plan, your financial advisor should provide guidance on your 401(k) asset allocation, and which investments you choose depends on how you’re allocated outside of your 401(k). You should receive a detailed analysis—and this advice—at no extra charge.
If you don’t have a financial advisor, have one look at your complete financial picture including your 401(k), and see what type of advice you get. Then, repeat this exercise with two or three different financial advisors and compare each, to see which one offers the most compelling and thoughtful advice. That might be the financial advisor worth hiring.
In the meantime, here are 4 sound tips for setting up your 401(k) asset allocation
1. Target Date Funds May Not Be the Ideal Solution
Target date funds are designed to become more conservative as you age, but that’s part of the issue – they only take into account your age! They do not factor-in other aspects of your financial life, like your other investments and your long-term objectives for the assets. You have unique needs and desires for your money, and target date funds unfortunately don’t take into account what those are.
2. Make Sure You’re Not Duplicating Investments
For example, if a large percentage of your non-401(k) assets are invested in small-cap funds, it could make sense to avoid small-cap funds in your 401(k). If you over-concentrate in one type or style of investment, it can increase the risk in your overall portfolio.
3. Avoid Making Too Many Changes
Once a financial advisor has helped you allocate your 401(k), stick with your choices and let time do some of the work. Your 401(k) is a long-term investment for your retirement, but switching in-and-out of investments is a short-term tactic.
4. Your Overall Asset Allocation Should Be Consistent with Your Goals
Your 401(k) is likely only one piece of your overall investment portfolio. When you look at everything together, you want to make sure the overall asset allocation is properly diversified and consistent with your risk tolerance and the growth objectives for your assets.
If you would like to discuss your 401(k) allocation, please give one of our Wealth Managers a call today at 1-800-541-7774.
