Devise Your Personal 401K Investment StrategyMost Americans spend a significant amount of their time setting up their 401k and zero time re-visiting those decisions. Rebalancing your 401k involves evaluating the investments that your 4041k currently participates in. Rebalancing, or reinvesting your 401k is important but you may also find that a complete reallocation is necessary. Your 401k portfolio is important and the reanalysis of your initial investment should also be considered. David Wray, president of the Profit Sharing/401k Council of America states that, "80% of Americans never change their 401K from their initial investment". Most workers don't check their account more than twice a year and even then they make no adjustment. Adjusting the investment targeted by your 401k portfolio should increase your profit by at least .5% per year. Risk tolerance and return needs are the two main concerns that affect 401k investors. Portfolio returns can be precarious, but if you Joel Tickner, certified financial planner and president of Ticknor Financial Inc. states that, "I tell clients that the academic research shows that rebalancing is the closest thing to a free lunch on Wall Street." Planners will often recommend that you rebalance your assets once a year. Be careful not to go to the other extreme. You should never rebalance your account more than 4 times a year. Reallocation is typically performed for one of two reason; either a life-style change or the market offers the ideal conditions for reallocation. As you get older you may choose to increase your allocation. The same may be true if the market starts to favor an industry such as technical stocks. Just be careful when you are reallocating and make sure your decisions are based on empirical research and not a 'hunch'. 401k plans have become more difficult to manage as the options for allocation and rebalancing have expanded. Most plans now offer great flexibility in both categories and you owe it to yourself to explore all of the options available. There are many advisors who would be happy to give you advice but remember that the goal with your 401k is retirement, not to make it rich with an investment. If your desire is to invest in the most aggressive stocks, set aside money other than your retirement fund to pursue those goals. |
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