The 401(k) is one of the most significant investment vehicles of a retirement plan. Your contributions to this retirement account come out of your paychecks, even before you see the money. In a lot of ways, this income is “out of sight” and, thus, “out of mind.” It may seem easier to give little attention to your 401(k), but this lack of consideration is a recipe for poor performance.
How do you know if you’re giving your 401(k) the attention it deserves? Consider your answers to the following questions.
Are You Properly Valuing Your 401(k) Investments?
People rarely consider how much value can be driven from their various investment accounts. Many investors spend a lot of time on a single online trading account. It becomes a bit of a hobby. But, they lose sight of their employer-based retirement savings account.
In fact, millions of Americans completely ignore their 401(k) accounts.
Upon qualification, you might set an allocation or get the default, pick how much you wish to save and then leave it alone. Some people work for the same company for 30 years and never adjust their asset allocation – despite the gravity of the account’s impact on their future net worth.
Regardless of what other accounts you own, it’s imperative that you track this retirement account and evaluate it on a recurring basis.
Are You Actively Managing Your 401(k)?
By definition, a 401(k) is a “self-directed account.” People are often managing them on their own, without the support of a financial advisor. In effect, these funds are being ignored – to the detriment of its performance and your future net worth.
It’s important to compare the allocation of this plan relative to your other investments. If your time frame and risk tolerance are the same for these other long-term financial goals and accounts, you should ensure that your 401(k) is structured the same way.
Are You Tracking And Comparing Your 401(k) As Part Of Your Total Asset Allocation?
Portfolio tracking is a vital activity for a sound investor. You need to monitor your investments on a regular basis, and your 401(k) is a significant component of your retirement plan and future net worth.
You can’t look at your 401(k) – or any investment account, for that matter – as an independent investment vehicle. All of your investment accounts make up your total portfolio, and they all play a part in achieving your financial goals. If you don’t adopt this mindset, you’re apt to take on too much or too little risk from a lack of transparency into your total portfolio.
For instance, if you decided to invest your entire 401(k) in a single tech fund, you wouldn’t want to invest in technology very much – if at all – in any other account you own. Had you been overinvested in technology in the late 1990s, you would’ve been a severe victim of the tech bubble and subsequent market crash.
Leverage portfolio tracking apps and software to aggregate your many accounts into a complete, big-picture portfolio, including your 401(k).
Are You Evaluating Your Asset Allocation Frequently Enough?
The need to monitor and evaluate your 401(k) is not so much a matter of missing time-sensitive information, but rather adjusting your asset allocation. You should be monitoring your wealth regularly and evaluating your asset allocation and risk on a quarterly basis.
Technology makes it easy to keep these important considerations in mind without it disrupting your daily routine. In many cases, portfolio tracking apps alert you when something needs your attention, like changing asset allocation. Regardless of how you choose to track your retirement plan, ensure that you do so. Without attention, you’re risking your hard-earned money and your future plans.
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