Description: The article mainly gives us some information on the topic of 401k. The writer will teach us how to select investments in 401k because most of the clients have a 401 K but have not received education information or recommendations on how to invest within their 401 K.
This is Alan Moore certified financial planner and founder of serenity financial consulting, thanks for joining me, so most of my clients have a 401 K through their employer, few of them have ever received education information or recommendations on how to invest within their 401 K.
People ask me all the time how they should make investment choices, because they’ve never been educated or told, so 401 k’s can come in a lot of different forms and they can have a lot of different options.
Four companies will offer company stock in the 401 k as well as a handful of mutual funds other times, they’ll have what’s called a brokerage link so that you can invest in any mutual fund in the market.
Those usually come with additional fees, so you’ll have to talk with your HR department to figure out what your actual options are, but here are a few tips to help you get started.
First, do not invest in your company stock, because your greatest asset is your ability to earn money, it’s your ability to earn income unless you know about retiring, then this is usually the case for most people, so you’re depending on your job for basically your greatest asset.
Do you want to depend on your company for your retirement as well? So if your company disappears tomorrow and suddenly you go out of business, go bankrupt, you lose your job, you’re already losing your income, you do not want to lose your retirement plan.
The 401 K doesn’t go away, but if you’re invested in your company’s stock and that stuff the company stock goes down, then suddenly you don’t have any investments anymore, because they’ve gone away.
So I highly recommend you that you should not invest in your company stock, stay away from it, don’t select every investment option so many times, a 401 K will have ten investment options, so people will not know which one to choose, they select all ten and put 10% in each one while this may feel like you’re diversifying.
You don’t know what those actual funds are, so eight of those funds are all invested in US stocks, now 80% of your portfolio is in one asset class which is under safai and truth, be told a lot of those funds probably have a lot of crossover.
So you may own a single company and a lot of those, so there can be a lot of problems with that, so I see it all the time, I definitely do not do this, we talked about the Dons, what I do is to check the expense ratios, so each mutual fund charges an expense ratio which is effectively a management and operation fee.
This is your way of paying the mutual fund manager and company for having the fun, they’re all going to have an expense ratio, but expense ratios vary widely among funds, they can be very low with Vanguard funds or very high such as without active management funds.
You should remember that your expense ratio is a direct deduction off your return, so if you have a 1% expense ratio feed, then essentially you’re getting 1% less in the market whether it’s up or down.
So if it’s down, it’s causing your returns to be even lower, so definitely pay attention to the expense ratios, I want to see them less than 0.4% lower, if possible, but usually higher expense ratios indicate an actively managed fund which we want to stay away from as well.
That kind leads it to the next, most 401ks have options such as Vanguard funds which are index funds as well as others, sometimes they can be a little hard to spot, they’ll usually have a benchmark or an index such as the sp500 or a fee or something like that in the title.
Sometimes, you got to dig a little deeper to figure out to be sure, it’s an index fund, you can usually see these quickly by lower expense ratios, so I don’t know that I’ve ever seen or rarely seen an index fund with hikes index.
I’m sorry with high expense ratio, so the lower they are, the better it is a good indicator, so the final thing is to do consult an investment advisor, I wish I could tell you that I can lay out four or five six tips.
You would be able to manage your own 401k, you set up for success, but unfortunately, it’s not that easy, there are some investment advisors that work on an hourly basis, so they’ll be able to sit down and consult with you on your 401k as well as your portfolio as a whole.
Make sure you’re on track, I highly recommend that you do this from time to time, because they can help, be sure that you don’t have any blind spots and that your emotions aren’t getting in the way of your making the best financial decisions for your retirement.
So what do you think? Have you ever received assistance with your 401k investments? Have you ever had questions that you weren’t able to answer? Does this post help? Do you have any additional questions? Definitely feel free to share in the comment section, that’s all I have for today, thanks so much for joining me.