Reclaiming The Reigns On Your 401(k)
By Michael Falk

Many of you may have been surprised to find that despite regular contributions, your 401(k) account actually lost money since last year. Unfortunately, it’s a common occurrence these days: for the first time in the 20-year history of the 401(k) retirement savings plan, the average account lost money, according to a report from Cerulli Associates. These losses may cause us to question our ability to manage 401(k) accounts, especially given today’s tumultuous market conditions.

When faced with the news of shrinking savings, the initial reaction of some 401(k) participants may be to contribute less to their plan. But read on. For many participants, a 401(k) or similar type of benefit is the primary home for our retirement savings. In fact, studies conducted by Vanguard and Morningstar.com show that roughly two out of three people have no savings outside of these plans- and typically, even the amount of 401(k) savings is not enough to meet retirement goals. The best course of action is to stay in the game and continue regular contributions. A few guidelines to help keep you on track include: know yourself and accurately assess your retirement needs, diversify your account, and rebalance your account annually.

• Know yourself – Invest depending on your age and needs. Younger investors may choose investments that have greater risk to maximize long-term returns, while those closer to retirement may want to invest in vehicles that preserve their funds for retirement, such as money market funds.
• Diversify – Choose a variety of appropriate investments. Diversification will lessen the chance that the entire account may be dragged down by one laggard. In addition, do not invest too heavily in company stock, as your company is already your main source of income.
• Rebalance – Once you decide how to allocate 401(k) contributions, monitor your account and rebalance assets as the market shifts or your financial status changes. 401(k) investments should be monitored and modified accordingly at least once a year.

These guidelines will be helpful to those that are motivated to implement them correctly. However, studies have shown that the majority of investors feel they cannot invest or monitor their 401(k) assets properly. One particular study conducted by Forrester Research suggests that 85 percent of individuals might prefer to have someone else manage their investments for them. These individuals may not have the time, desire, and/or ability to invest their savings appropriately. In short, they prefer to spent time on things they truly enjoy, and investments may not be on the list.

For those that do not want to manage their 401(k) assets, one option is ProManage Inc. Unlike current advice or educational products on the market today (where investors still must make investment decisions), ProManage is hired by a plan sponsor (i.e. company) to allocate and manage employees’ 401(k) assets for them.

ProManage allocates the individual’s 401(k) assets according to their particular circumstances across the investment options offered in an employer’s plan. The diversified portfolio is based on the participant’s age, current savings, estimated Social Security benefits, and any other corporate sponsored retirement benefits. As the participant’s financial profile changes, ProManage recalculates and rebalances the portfolio each year.

If you want a professional to allocate and manage your 401(k) assets for you, ProManage at www.promanageplan.com can help.

– Michael Falk, Investment Strategist, ProManage. Michael may be contacted at [email protected].