Recently, an acquaintance came to me with his most recent 401(k) statement. He was, quite frankly, shocked by what he saw. In his words, he was “Having a freakout about my 401(k).” He asked for help understanding what it was he was looking at…and why, exactly, his plan was performing the way it was.
As we always do when helping someone with a financial issue, I started by asking him lots of questions. Turns out, he didn’t know very much about his 401(k). For example, he didn’t know what he owned – what stocks, bonds, and mutual funds he was invested in. He didn’t really know what investment options were available. He didn’t even know what fees he was paying.
To be honest, many people don’t know. Studies have shown that many 401(k) participants have no idea what’s even in their 401(k), what their options are, what investments they’ve selected, or how much risk they’re taking on.1 Sometimes, that’s because their plan provider has not given them that information or has not made it easily accessible. Other times, it’s because people don’t have time to look. Or they don’t know to look.
Here’s what most people do know about their 401(k):
- A portion of their paycheck gets invested in it every month.
- Ideally, their employer will match at least a portion of their monthly contributions.
- Hopefully, by the time they’re ready to retire, they will have accumulated enough to live out their golden years.
Here’s what everyone should know:
- Exactly what stocks, bonds, mutual funds, and ETFs your money is invested in – because it’s been chosen specifically with your specific situation in mind.
- How your 401(k) has been performing…and how it’s likely to perform during market volatility. (Sometimes, the investments you chose during a bull market are the exact wrong ones to own during a bear, and vice versa.)
- How much you are paying in fees.
- Whether or not your plan has brokerage window and if you should take advantage of it. This is an option that gives investors the capability to choose from a far wider range of investments than the typical – and limited – menu offered by the plan directly.
- When it’s time to adjust your holdings, and when it’s time to stand pat.
As a financial advisor, there’s a question I want you to ask yourself right now: “Do I know all these things? Or have I been in the dark?”
I won’t mince words: It can be very risky to be in the dark about your 401(k). That’s because your plan is one of the most important tools you have for saving for retirement. Until social security kicks in, there’s an argument to be made that it is the most important.
Any and all uncertainty regarding your 401(k) should always be cleared up as soon as possible. That’s especially true during times of major market volatility like we’re in right now.
Now, we may not manage your 401(k). But since your 401(k) is such an important vehicle for traversing that path, we want to help you get the most out of it.
So, if you have ever been surprised or confused about what’s in your 401(k) statement, or if you don’t know any of the following:
- What you own.
- Why you own it.
- What other options are available.
- Whether your current ownings are appropriate for the current market environment.
- What you are paying for the performance you’re getting.
Please ask us! We want to help you avoid any “401(k) freakouts” in the near or distant future. Now is the time to determine if you are in the wrong investments based on either subpar performance or excessive fees.
And if you ever have any questions about your 401(k), please don’t hesitate to come to us!
1 Richard Eisenberg, “We’re Flying Blind Investing for Retirement,” Next Avenue, June 12, 2014. http://www.nextavenue.org/were-flying-blind-investing-retirement/