Most people haven’t taken an undergraduate class on investing, much less 401k investing. When the 401k was introduced, it had a limited number of choices. Then, due in part to technological advances, the number of choices began to balloon. I have seen one plan with 150 choices for busy attorneys. I doubt they had a lot of time to evaluate these choices. What does evaluating choices even mean?
Does your employer know more than you about 401k investing?
While you hope so, that may not be the case. As an Accredited Investment Fiduciary, I have specific education in all aspects of running a retirement plan. I have yet to come across a company official with this type of background. For the first time, I had a company that sought me out because I had that credential!
A fiduciary’s responsibility is to create a plan based on responsible costs and choices. While the choices individually may be good, they don’t have to be right for you. The choices don’t even have to play well together, within a portfolio. That is on you unless you opt for staying in the default choice.
401k investing default choices
Does the default have you in mind? Many plans have a default choice. Some defaults are in a cash type of investment. Others have something called a qualified default investment alternative. That choice could be referred to as balanced, risk-based, or target date. No matter the choice, they each have a mix of different types of investments, such as bonds, stocks, and cash. However, an x-ray is required to know what percentage is included in each. In addition, what specific types of investments are inside an allocation? Are they proprietary or non-proprietary? Should you care?
401k investing and systematic saving
Many people think investing is a strategy for finding the right investment and getting in and out of it at the right time. This speculative strategy is difficult to get right. In fact, there is no research I am aware of that shows its success! 401k investing has as a backbone, a systematic savings approach known as dollar cost averaging. In this strategy, your paycheck contributions will continue. It doesn’t matter whether the individual price of your investments has gone up or down.
Let’s use an example of buying Kiwis at the market. Sometimes they sell 1 for $1. Other times, they sell 4 for $1. Rather than say what’s wrong with these, Kiwi lovers tend to buy more. In this case, they say Kiwis are “in season”. If we had $1 + $1 divided by 1 +4 Kiwis, your dollar cost average price is $0.40. When it comes to investing, it is impossible to know what the future price will be. By continuing to buy in all conditions, we benefit.
However, it is important to discover what fruits, and investments are right for you, so that you’ll stick with your investments and investment strategy. Does your individual strategy complement the systematic investing of your 401k plan?
“One-size-fits-some-people” or customized 401k investing advice?
Unfortunately, your 401k plan may be oversimplified to meet the needs of many. However, the purpose of a plan for your 401k investing is to help you fund a comfortable retirement. Why not get help focused on understanding your specific needs and situation?
Envision Wealth Planning will provide customized 401k investing investment advice to fit your unique situation. Whether you are just getting started or nearing retirement, we can help. We will help you create a thoughtful strategy that brings your personal vision of financial independence into focus.
Everyone has a different idea of financial freedom—you may envision walking along your quiet lakefront home, traveling the world, or something uniquely yours. We can help you evaluate your goals and create a 401k investing strategy based on your current financial situation, investment philosophy, and timeline.
Our customized 401k investing service
Through our 401k investing service, we will
- Help you clearly and accurately define your 401k investing investment objectives.
- Obtain current information from you to ensure that our recommendations are accurate for your needs and goals.
- Provide recommendations only with respect to investment options available under your current 401k.
- Deliver written asset allocation and/or specific investment recommendations for your 401k assets held at a custodian other than Envision Wealth Planning. It is up to you to decide whether to implement our recommendations.
Moreover, we recommend discussing this with your tax advisor. This service may be tax deductible, as we charge you a flat investment advisory fee.
Addressing your retirement needs may seem daunting, but we can work with you to establish a strategic direction and guide you toward your goals. Contact us for an introductory call, and start gaining the knowledge and insight you need to plan for retirement.