401(k) Plans, Some Rules To Help Guide You

Editor’s note: Contributing columnist, Steve Nicklas, expresses his views and insight on various topics in Marketplace column.

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If your 401(k) plan got reduced to virtually a 201(k) by the financial collapse in 2008 and has never recovered, you probably need help.

We are talking about help in managing your investments in these critical retirement plans. Something many 401(k)s do not readily provide to participants. There is more than $4 trillion invested inside 401(k) plans around the U.S., according to published reports, and they are the core of retirement ambitions.

Many investors have never recovered since the financial crisis of seven years ago. They moved out of stocks after the market declined precipitously, and have only put a toe back in the water since then.

So what is the typical investor to do now — especially the 401(k) investor? First, and foremost, there is a financial advisor affiliated with the company that administers your 401(k). You can ask him or her for advice, for beginners. Or you can ask your personal financial advisor outside of work.

Some Rules To Help Guide You:

— The allocation of your investments determines 91 percent of your returns, according to studies. This means how much you have in stocks versus bonds, for instance, determines your success more than which large-cap mutual fund you choose. Many 401(k) investors become overwhelmed by such decisions, and do nothing.

— Keep your eye on the number of shares you own — not the price. The prices of investments inevitably fluctuate. You can achieve peace of mind by following the number of shares you accumulate with each contribution. Remember also that you purchase more shares when prices of a mutual fund or stock decline, in a dollar-cost-averaging effect. This strategy of regularly investing forces you to buy when prices are declining (the hardest thing to do in investing).

— There are two allocations within a 401(k): the new contributions, and the existing money. Each of these can be invested differently. The objective is to invest the new contributions as aggressively as you can stomach — while positioning the existing funds more conservatively.

— Rebalance your mutual funds quarterly, if possible. In this way, you take profits on investments that have appreciated, while adding to those that have declined. Again, this is a “buy low, sell high” approach.

— One other thing: If you are completely unhappy with your 401(k) because of poor performance, limited options, an inferior “match” from your employer, etc., you can often roll the existing money into an IRA of your choice. This is called an “in-service distribution.” And you can continue contributing to your 401(k) at work, which occurs before taxes.

— And don’t leave your old 401(k) behind at a former employer. You will be the last to be notified of investment changes, management decisions, etc. It is easy to roll these old funds into your new 401(k) plan, or into an IRA.

For many people, a 401(k) becomes their largest asset. It must be monitored and managed accordingly. Unless you are financially savvy, getting advice can help you sift through the options and make decisions. Several studies have revealed that most 401(k) participants never change their investments, or rebalance, over years and even decades.

These investors chose their allocation when they joined the company plan, and have not looked at their investments since. Being more proactive, armed with advice and knowledge, can help that 201(k) rebound — and return to its glory days.
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Financial advisor Steve Nicklas will offer his popular “Investing in Today’s Financial Markets” class on Amelia Island this fall beginning Oct. 18.

These adult-education classes have been offered at Florida State College since 2001 and cover vital topics in the investment and retirement areas — within an easy-to-understand presentation. The topics include: financial and retirement planning; investing in stocks, bonds and mutual funds; and managing retirement accounts such as IRAs, 401(k)s, SEP-IRAs, etc.

The class sessions will be held on Tuesday evenings from 6:30 to 8:00 p.m. at the Executive Park conference room at 1890 South 14th Street in Fernandina Beach. The sessions are on Oct. 18, 2016 (Investing in Stocks), Oct. 25 (Investing in Bonds), Nov. 1 (Investing in Retirement Plans) and Nov. 8 (Developing a Financial Plan). There is no cost for the class or for the materials, but you are asked to pre-register by calling Stacy at 904-380-2300.