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How Do You Know Which 401(k) Funds to Select?

Submitted and written by Paul Fokken

So how do you know which funds to pick? They are so many different companies and options available to you in many cases. Well, most people who seek help are getting Professional Account Management for their 401(k)/403(b)/457/TSP Account!


There are typically 3 ways that people manage their 401(k) and I will tell you that having the company manage it for you is not an option. They can’t because it is your 410(k). Many people are uninformed of this but your company can’t provide you specific financial advice because they are not authorized to do so.


Here Are The 3 Ways That Most People Manage Their 401(k)

1. Manage it yourself: In this scenario many just get signed up initially with some help from the company or somebody hired by the company to help them out. In this case most people once signed up just leave it there. They say oh its up this quarter or oh it’s down some this. quarter and file it away. Now don’t get me wrong there are those that have the financial knowledge or they conduct the research and make their own changes but do you have the time and expertise to complete that and hope you get it right? In fact research shows that only 20% of 401(k) investors rebalance their account! Think about that and how much exposure you are opening yourself up to and how much more potential retirement money is lost because you are not being proactive.


As Robert Shiller, Nobel Prize Winner and Yale University Economics Professor put it…


2. Get some help or ask for some help occasionally: This is where people will typically ask their accountant, a company rep or an advisor if they should change anything every 6 months at the earliest, a year or two years or maybe longer. Again can your account balance wait 6 months before making changes in a bear market? Is this getting you enough timely specific advice that you need regarding your personal situation? This is a little better than no help but why not consider #3…


3. Get professional help with your 401(k): This is where people are actively seeking input every 90 days on where to make changes. However, even in this situation you must be aware. There are some robo-advisers or other companies that will rebalance your account for you but is only based on age and the year of your retirement. Now ask yourself a question…Just because you are going to retire the same time as someone does that mean your risk tolerance is the same or you have the same financial situation? Of course not.

If you see the benefit of getting help, seek out professional 3rd party advice where your risk tolerance and financial situation is considered and that you look and see if you need to make changes every 90 days! Don’t fall for simplified philosophy of placing a significant portion of your retirement nest egg in some type of lifepath fund or target date fund! You may regret that decision in the long run.

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