Objective information about financial planning, investments, and retirement plans

Stock Market Volatility – Time and Diversification

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In 2018, the stock market reminded investors that it doesn’t always go up and that volatility is alive and well. In fact, the S&P 500 index recorded its first losing year since 2008, the height of the financial crisis. So far in 2019 the markets have bounced back a bit.

This chart from JP Morgan Asset Management’s quarterly Guide to the Markets does an excellent job of illustrating the relationship between time, portfolio diversification and the potential volatility of investment returns.Time, diversification and the volatility of returns

Source: JP Morgan Asset Management Guide to the Markets

A brief explanation

The chart illustrates the returns of stocks, bonds and a 50/50 mix of the two over rolling 12-month, 5-year, 10-year and 20-year periods dating back to 1950 and through the end of 2018, a time period that includes the Black Monday crash of 1987, the bursting of the Dot Com bubble and the financial crisis of 2007-09. In each grouping, the green bar represents stocks, the blue bar represents bonds and the grey bar represents a 50/50 mix of the two.

Stocks are represented by the S&P 500 and bonds by Bloomberg Barclays Aggregate since 2010, with a predecessor benchmark used prior to that.

The impact of time

As you go from left to right on the chart, the time periods get longer. As the time period increases, the range of returns becomes narrower. For example, the range of rolling 12-month returns for stocks is +47% to -39%. The range over rolling 20-year periods is +17% to +6%.

This relationship is true in all cases depicted. Time minimizes the impact of investment volatility.

Diversification 

Stocks are more volatile and will almost always have a wider disparity in returns over time than bonds. This is especially true over the short-term as depicted in the chart.

The chart also shows that a 50/50 allocation to stocks and bonds has a narrower range of returns than either asset class by itself. This is in large part due to the fact that stocks and bonds have a low and negative correlation to each other. According to another chart in the JP Morgan presentation, that correlation coefficient for the S&P 500 and the Barclays Aggregate Bond Index is -.18 for the ten years ending in 2018. This means that there is a low and slightly negative correlation in the performance of the two asset classes and that the factors that impact the performance of these two investment types are not that closely related.

What are the implications for investors? 

There is nothing new or profound in this chart, but none the less the data as portrayed is important for investors to remember, especially in times of market volatility.

It’s easy to panic and fall victim to the all of the pronouncements we tend to hear in the financial media any time the market experiences a period of volatility. The reality is that markets do not always go up, some volatility as well as periods of negative returns are normal parts of the market cycle.

Investors should use these periods of volatility to review their holdings and their asset allocation to determine if it fits their risk tolerance and their investing timeframe. They should rebalance their portfolios and adjust their allocation as appropriate. The correct allocation will likely be different for someone who is 35 with a long time until retirement versus someone in their 50s and within ten years or less of retirement. While the 50/50 allocation portrayed is for illustration purposes only, it is important to consider including some holdings that are not highly correlated to other holdings in your portfolio.

While there is no way to predict the future, we are in the midst of the longest running bull market for stocks in history. Add to this the uncertainty in Washington in terms of economic policy and the ingredients for continued market volatility are certainly in place.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Concerned about stock market volatility? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if it’s right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Why Should I Care if My Financial Advisor is a Fiduciary?

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House Financial Services committee members sit...

The Department of Labor released its final draft of their fiduciary rules mandating that financial advisors place their client’s best interests first when offering advice on their retirement accounts in 2016. Here is a post I wrote just before the release. DOL Fiduciary Rules – What Do They Mean For You?

The rules were slated to be fully implementated on January 1, 2018, but the Trump administration’s opposition to these rules scuttled this. The current state of things in the financial advisory world is mixed, as some brokerage firms had gone partially down the path of implementation.

At the end of the day, however, why should you as an investor care if your financial advisor is a fiduciary? Here are some thoughts on this for those looking for a financial advisor or who are already working with one.

Definition of a Fiduciary

fi•du•ci•ar•yA financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest.

This is the definition of Fiduciary used by NAPFA (National Association of Personal Financial Advisors) the largest professional organization of fee-only financial advisors in the United States.

Why should you care if your financial advisor is a fiduciary?

Stock brokers are regulated by FINRA, who required them to make recommendations that are suitable for their clients. I’ve never come across a good definition of what suitable really means. Here is one definition I did find several years ago on the website of Clausen Miller a law firm with offices in major U.S. and international cities:

The suitability rule provides that when a financial representative recommends to an investor the purchase, sale or exchange of any security, a financial representative shall have reasonable grounds for believing that the recommendation is suitable for such investor upon the basis of the facts, if any, disclosed by such investor as to his or her other security holdings and as to his or her financial situation and needs.

This really doesn’t specify anything about loyalty to the client, disclosure or anything else. The word reasonable is quite vague at best.

This brings me to the reason that clients should care if their financial advisor is a fiduciary. As a client I would want to know that my financial advisor is acting with my best interests at heart, that he or she is making recommendations to me that are in my best interest. In fact, as you receive disclosures telling you that your broker, financial advisor or registered rep is now a fiduciary acting in your best interests a logical question is, “Weren’t you doing this in the past?”

Several years ago Charles Schwab ran an ad depicting a brokerage office pushing the stock of the day and used the phrase “…let’s put lipstick on this pig…” While humorous (and perhaps exaggerated) I fear that it did reflect the mentality of many product-pushing sales people calling themselves financial advisors.

Many investors don’t understand

The worst part is that most of the investing public doesn’t really understand all of this. Many financial advisors who are subject to the suitability rules are competent and concerned with the welfare of their clients. They make recommendations that are in line with the best interests of their clients. Unfortunately, there are others who don’t and are not required to under the vagaries of the suitability rules.

While the new fiduciary rules were largely scuttled, the investing public can and should look for advisors who act in their client’s best interests. Pay attention to any and all disclosures that you might receive from your financial advisor. Ask questions and don’t settle for half-baked answers. Ask your advisor outright if they are a fiduciary and if they act in their client’s best interests. Ask about any potential conflicts of interest they may have in rendering advice to you. Ask them about all sources of compensation from their relationship with you. It’s important that as a client you fully understand all of this. There is no one right or wrong answer, ultimately that is for you to decide as a client or prospective client.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Concerned about stock market volatility? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if it’s right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Photo credit:  Wikipedia

My Top 10 Most Read Posts of 2018

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I hope that 2018 was a good year for you and your families and that you’ve had a wonderful holiday season. For us it was great to have our three adult children home and to be able to spend time together as a family. We all ate way too much good food.

As far as the stock market, 2018 was certainly a volatile year, we will have to wait and see what 2019 holds for investors and those looking toward retirement.

Hopefully you find many of the posts here at The Chicago Financial Planner useful and informative as you chart your financial course. Whether you do your own financial planning and investing, or you work with a financial advisor, my goal is to educate and provide some food for thought.

In the spirit of all the top 10 lists we see at this time of year, here are my top 10 most read posts during 2018:

Is a $100,000 Per Year Retirement Doable?
Year-End 401(k) Matching – A Good Thing?
401(k) Fee Disclosure and the American Funds
4 Reasons to Accept Your Company’s Buyout Offer
Life Insurance as a Retirement Savings Vehicle – A Good Idea?
4 Benefits of Portfolio Rebalancing
7 Tips to Become a 401(k) Millionaire
Should You Accept a Pension Buyout Offer?
Five Things to do During a Stock Market Correction
Small Business Retirement Plans – SEP-IRA vs. Solo 401(k)

 

This past year saw me expand my freelance financial writing business, while continuing to serve a number of long-time financial advisory clients. I wrote a number of pieces for various financial services firms and other financial advisors over the past year. I’m looking forward to continuing to grow my business into 2019 and beyond.

Thank you for your readership and support. Please let know what you think about any of the posts on the site (good or bad) and please let me know if there are topics that you would like to see covered in 2019. Please feel free to ask any questions you may have via the contact form.

I wish you and your families a happy, healthy and prosperous 2019.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Concerned about stock market volatility? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if it’s right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

 

Charitable Giving and Tax Reform

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The Tax Cuts and Jobs Act passed in December of 2017 marks the biggest overhaul in the tax code in many years. One area that will be impacted under tax reform is charitable giving.

While charitable contributions remain eligible as an itemized deduction under tax reform, the ability to actually deduct your contributions may have been impacted by some changes in in the rules. Here are some thoughts for this holiday season and throughout the year.

SALT Cap

SALT stands for state and local taxes. Tax reform capped the amount of these taxes that can be used as an itemized deduction at $10,000 for 2018 going forward. The two biggest SALT components for most people are their state income taxes and their property taxes. This will especially impact those people living in states with high income taxes and locations with high property values/property taxes. Many commentators say this was politically motivated since taxpayers in “blue states” seem to be disproportionately impacted, I’ll leave that to you the reader to decide.

Higher standard deduction

The other major change that may impact your ability to itemize deductions is the increase in the standard deduction. Starting in 2018, the standard deduction increases to $24,000 for those who are married filing jointly and $12,000 for single filers. This means that if your itemized deductions are less than these thresholds, you will be better off taking the standard deduction versus itemizing.

Note that these and most provisions under tax reform expire after the 2025 tax year, so we will see what the future holds for these and other provisions beyond that. 

Deductibility of charitable contributions under tax reform 

The deductibility of charitable contributions was not eliminated under tax reform, in fact it was expanded for some high-income taxpayers. The issue for many taxpayers is whether or not they can still itemize deductions with the changes to the standard deduction limits and the SALT cap discussed above.

For those whose situation might not allow them to itemize, here are some ways to make your charitable giving more tax-efficient.

Bunch contributions

Let’s say that you and your spouse file a joint return. In this example let’s say your mortgage interest is $10,000 for the year and your SALT taxes are capped at the $10,000 level. With other deductible expenses your itemized deductions would come to $21,500, leaving you $3,500 short of the $24,000 standard deduction threshold.

One option would be to bunch expenses that would qualify as itemized deductions into 2018 (or any appropriate year) to get over the $24,000 hurdle.

In the case of charitable contributions, you might consider making additional contributions in the current tax year to help your reach the threshold where you can itemize. If you normally would make contributions of $1,500 per year and can afford to do so, you might try to make 2-3 years’ worth of contributions to the organizations of your choice in the current year to get your deductions above the threshold.

Give appreciated securities or assets 

Using appreciated securities held in a taxable account to make charitable contributions has long been an excellent method to make charitable contributions. Stocks, mutual funds and ETFs that have appreciated in value are good gifts. Other types of appreciated assets can be used as well, such as art, collectibles and real estate. These types of assets will need to have an appraisal to determine their value as a gift, versus using the market value on the day of the gift for appreciated securities.

There are two potential benefits:

  • The value of the gift can be deducted as a charitable contribution for those who can itemize deductions.
  • There are no capital gains taxes that will be due on the contributed shares. If you were to sell the shares first and then contribute the cash, you would owe capital gains taxes on the amount of the realized gain on the sale.

This strategy can also be used as part of your overall portfolio rebalancing, it can be a tax-efficient way to rebalance your holdings.

Even for those who cannot itemize under the new rules, the benefit of not having to pay taxes on the capital gains can be a significant benefit.

If you have a security that has declined in value, you are generally better off selling it, realizing a loss on the sale and then contributing the cash.

If this is a route that is appropriate for you, be sure to contact the organization to ensure that they can accept gifts of appreciated securities or other types of assets.

Donor-advised funds 

A donor-advised fund is a fund that allows you to have your contributions to the fund professionally managed, offering the opportunity to make contributions to qualified charitable organizations over time. DAFs have been around for many years and are offered by such big-name financial services organizations like Vanguard, Schwab and Fidelity among others.

After establishing your account, contributions to the DAF can be made via check, securities or other assets. The details may vary a bit from fund to fund.

The fund invests your contributions professionally, typically through a list of individual funds or several managed portfolios they might offer. The money grows, and contributions can be made over time to the organization(s) of your choosing, as long as they are qualified charities. Most DAFs have minimum initial and future contribution levels, as well as minimum donation levels.

DAFs fit well into the new tax environment in that they can accept appreciated securities and can be a great vehicle to bunch your contributions in order to be able to itemize in certain years. They also allow you to space out your charitable donations if your desire is to give a certain amount each year.

RMD – Qualified Charitable Distribution (QCD) 

For those who are age 70 ½ or older, you can direct some or all of your required minimum distribution (RMD) to a qualified charitable organization each year in what is called a qualified charitable distribution (QCD). The limit is $100,000 annually.

The QCD has been around for a number of years. The amount directed to the charity is not taxed. This is beneficial for many reasons, including keeping your income in a range that offers the lowest future Medicare costs.

The amount of the QCD does not qualify as a deductible charitable contribution. If you have charitable intentions, this can be a tax-efficient way to make charitable.

The Bottom Line 

Contributing to charity is a great thing to do for those of us who are able to do it. As a Jesuit priest told me back in my graduate school days at Marquette University, you might as well take any tax breaks possible when making donations. The ideas above can help make your contributions a bit more tax-efficient.

As with any tax or financial planning issue, be sure to consult with a qualified tax or financial professional to determine if these ideas make sense for your situation.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Photo via I’dPinThat!

Small Business Retirement Plans – SEP-IRA vs. Solo 401(k)

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One of the best tax deductions for a small business owner is funding a retirement plan. Beyond any tax deduction you are saving for your own retirement.  As a fellow small business person, I know how hard you work.  You deserve a comfortable retirement. If you don’t plan for your own retirement who will? Two popular small business retirement plans are the SEP-IRA and Solo 401(k).

Small Business Retirement Plans – SEP-IRA vs. Solo 401(k)

SEP-IRA vs. Solo 401(k)

SEP-IRA Solo 401(k)
Who can contribute? Employer contributions only. Employer contributions and employee deferrals.
Employer contribution limits The maximum for 2018 is $55,000 and increases to $56,000 for 2019. Contributions are deductible as a business expense and are not required every year. For 2018, employer plus employee combined contribution limit is a maximum of 25% of compensation up to the maximums are $55,000 and $61,000, respectively. For 2019 these limits increase to $56,000 and $62,000. Employer contributions are deductible as a business expense and are not required every year.
Employee contribution limits A SEP-IRA only allows employer contributions. Employees can contribute to an IRA (Traditional, Roth, or Non-Deductible based upon their individual circumstances). $18,500 for 2018. An additional $6,000 for participants 50 and over. In no case can this exceed 100% of their compensation.The limits for 2019 increase to  $19,000 and $25,000 respectively.
Eligibility Typically, employees must be allowed to participate if they are over age 21, earn at least $600 annually, and have worked for the same employer in at least three of the past five years. No age or income restrictions. Business owners, partners and spouses working in the business. Common-law employees are not eligible.

Note the Solo 401(k) is also referred to as an Individual 401(k).

  • While a SEP-IRA can be used with employees in reality this can become an expensive proposition as you will need to contribute the same percentage for your employees as you defer for yourself. I generally consider this a plan for the self-employed.
  • Both plans allow for contributions up your tax filing date, including extensions for the prior tax year. Consult with your tax professional to determine when your employee contributions must be made. The Solo 401(k) plan must be established by the end of the calendar year.
  • The SEP-IRA contribution is calculated as a percentage of compensation. If your compensation is variable the amount that you can contribute year-to year will vary as well. Even if you have the cash to do so, your contribution will be limited by your income for a given year.
  • By contrast you can defer the lesser of $18,500 ($24,500 if 50 or over) or 100% of your income for 2018 and $19,000/$25,000 for 2019 into a Solo 401(k) plus the profit sharing contribution. This might be the better alternative for those with plenty of cash and a variable income.
  • Loans are possible from Solo 401(k)s, but not with SEP-IRAs.
  • Roth feature is available for a Solo 401(k) if allowed by your plan document. There is no Roth feature for a SEP-IRA.
  • Both plans require minimal administrative work, though once the balance in your Solo 401(k) account tops $250,000, the level of annual government paperwork increases a bit.
  • Both plans can be opened at custodians such as Charles Schwab, Fidelity, Vanguard, T. Rowe Price, and others. For the Solo 401(k) you will generally use a prototype plan. If you want to contribute to a Roth account, for example, ensure that this is possible through the custodian you choose.
  • Investment options for both plans generally run the full gamut of typical investment options available at your custodian such as mutual funds, individual stocks, ETFs, bonds, closed-end funds, etc. There are some statutory restrictions so check with your custodian.

Both plans can offer a great way for you to save for retirement and to realize some tax savings in the process. Whether you go this route or with some other option I urge to start saving for your retirement today 

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Photo credit Flickr

4 Things To Do When The Stock Market Drops

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Today the stock market took another hit. The Dow Jones Industrial Average fell over 799 points or about 3.1%. The S&P 500 lost over 3.2%. An inverted yield curve, often a precursor to a recession, continued concerns about a trade war with China and concerns about Apple’s future outlook all fueled investor concerns. On top of this the stock market is closed tomorrow due to a national day of mourning for former President Bush, making many investors fearful of being long on stocks going into this midweek closure. What should you do now? Here are 4 things to consider when the stock market drops.

4 Things to do When the Stock Market Drops

Breathe 

Cable news networks like CNBC have a field day during steep, sudden stock market corrections like we saw today. It’s easy to get caught up in all of this hype. Don’t let yourself be sucked in.

Step back, take a deep breath and relax.

Take stock of where you are 

Review your accounts and assess the extent of the damage that has been done. Depending upon how you are invested it may be minor or a bit more significant. Investors who are well-diversified have probably been hurt but not to the extent of those with a heavy allocation to equities and other volatile areas that have been hit.

Review your asset allocation 

Has your portfolio weathered this storm and the declines we saw earlier in the year as you would have expected? If so your allocation is likely appropriate. If not, then perhaps it is time to review your asset allocation and make some adjustments. Proper diversification is great way to reduce investment risk. This is a good time to rebalance your portfolio back to your target asset allocation if needed as well.

Go shopping 

Market declines can create buying opportunities. If you have some individual stocks, ETFs or mutual funds on your “wish list” this is the time to start looking at them with an eye towards buying at some point. It is unrealistic to assume you will be able to buy at the very bottom so don’t worry about that.

Before making any investment be sure that it fits your strategy and your financial plan. Also make sure the investment is still a solid long-term holding and that it is not cheap for reasons other than general market conditions.

The Bottom Line 

Steep and sudden stock market declines can be unnerving. Don’t panic and don’t let yourself get caught up in all of the media hype. Stick to your plan, review your holdings and make some adjustments if needed. Nobody knows where the markets are headed but those who make investment decisions driven by fear usually regret it.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

7 Tips to Become a 401(k) Millionaire

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According to Fidelity, the average balance of 401(k) plan participants stood at $104,000 at the end of the second quarter of 2018, just shy of the all-time high level of $104,300 at the end of 2017. This data is from plans using the Fidelity platform.

They indicate that about 168,000 participants had a balance of $1 million, which is about 41 percent higher than a year earlier. What is their secret?  Here are 7 tips to become a 401(k) millionaire or to at least maximize the value of your 401(k) account.

Be consistent and persistent 

Investing in your 401(k) plan is more of a marathon than a sprint.  Maintain and increase your salary deferrals in good markets and bad.

Contribute enough 

In an ideal world every 401(k) investor would max out their annual salary deferrals to their plan which are currently $18,500 and $24,500 for those who are 50 or over. These amounts increase to $19,000 and $25,000 for 2019.

If you are just turning 50 this year or if you are older be sure to take advantage of the $6,000 catch-up contribution that is available to you. Even if your plan limits the amount that you can contribute because of testing or other issues, this catch-up amount is not impacted. It is also not automatic so be sure to let your plan administrator know that you want to contribute at that level. 

According to a Fidelity study several years ago, the average contribution rate for those with a $1 million balance was 16 percent. According to their most recent data, the average contribution across all 401(k) investors they surveyed was about 8.6 percent. The 16 percent contribution rate translated to a bit over $21,000 for the millionaire group.

As I’ve said in past 401(k) posts on this site, it is important to contribute as much as you can. If you can only afford to defer 3 percent this year, that’s a start. Next year try to hit 4 percent or more. As a general rule it is a good goal to contribute at least enough to earn the full match if your employer offers one.

Take appropriate risks 

As with any sort of investment account be sure that you are investing in accordance with your financial plan, your age and your risk tolerance.  I can’t tell you how many times I’ve seen lists of plan participants and see participants in their 20s with all or a large percentage of their account in the plan’s money market or stable value option.

Your account can’t grow if you don’t take some risk.  

Don’t assume Target Date Funds are the answer 

Target Date Funds are big business for the mutual fund companies offering them. They also represent a “safe harbor” from liability for your employer. I’m not saying they are a bad option but I’m also not saying they are the best option for you.

I like TDFs for younger investors say those in their 20s who may not have other investments outside of the plan. The TDF offers an instant diversified portfolio for them.

Once you’ve been working for a while you should have some outside investments. By the time you are say in your 40s you should consider a more tailored portfolio that fits you overall situation.

Additionally Target Date Funds all have a glide path into retirement. They are all a bit different, you need to understand if the glide path offered by the TDF family in your plan is right for you. 

Invest during a long bull market 

This is a bit sarcastic but the bull market for stocks that started in March of 2009 is in part why we’ve seen a surge in 401(k) millionaires and in 401(k) balances in general. The equity allocations of 401(k) portfolios have driven the values higher.

The flip side are those who swore off stocks at the depths of the 2008-2009 market downturn have missed one of the better opportunities in history to increase their 401(k) balance and their overall retirement nest egg.

Don’t fumble the ball before crossing the goal line 

We’ve all seen those “hotdogs” running for a sure touchdown only to spike the ball in celebration before crossing the goal line.

The 401(k) equivalent of this is to just let your account run in a bull market like this one and not rebalance it back to your target allocation. If your target is 60 percent in stocks and it’s grown to 80 percent in equities due to the run up of the past few years you might well be a 401(k) millionaire.

It is just as likely that you may become a former 401(k) millionaire if you don’t rebalance.  The stock market has a funny way of punishing investors who are too aggressive or who don’t manage their investments.

Pay attention to those old 401(k) accounts 

Whether becoming a 401(k) millionaire in your current 401(k) account or combined across several accounts, the points mentioned above still apply. In addition it is important to be proactive with your 401(k) account when you leave a job.  Whether you roll the account over to an IRA, leave it in the old plan or roll it to a new employer’s plan if allowed do something, make a decision.  Leaving an old 401(k) account unattended is wasting this money and can be a huge detriment to your retirement savings efforts.

The Bottom Line 

Whether you actually amass $1 million in your 401(k) or not, the goal is to maximize the amount accumulated there for retirement.  The steps outlined above can help you to do this. Are you ready to start down the path of becoming a 401(k) millionaire?

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.