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How to Fix the 401k…or Your 401k Anyway

[/fusion_text][fusion_text]401k plans are such a good idea in theory. I guess that’s not saying much. A lot of things are good in theory.

We (the government, the investment industry, lawyers) have created a 401k system where we put people in charge of their own retirement, but we don’t give them enough tools to help them make good decisions. Often times 401k participants are handed a list of a dozen or more funds and told to pick the best ones for them. Remember, most people don’t get a personal finance course in school and aren’t experts on investing. Some “advisors” to 401k plans aren’t willing (or worse yet aren’t allowed by their firms) to give explicit advice to participants. How is that a good system?

Thankfully, improvements have been made over time. Most 401k plans now offer target retirement date funds. A good starting point is to find one that corresponds to your planned retirement date and start there. That at least puts you in the right ballpark. If the fund company happens to be Vanguard, Fidelity, or Blackrock, you should be in pretty good shape.

Of course, not all target retirement date funds are created equal. Some are full of high cost funds that eat away at your hard earned savings. So it’s best to check the expense ratios. With a renewed emphasis on low cost funds in 401k plans, finding the expenses should be easier than before. The target date retirement funds should have expenses that are lower than most of the stock/equity funds in the plan. If that’s not the case, try my next idea.

Idea #2: Look for index funds in your plan and use at least one U.S. large cap fund, one U.S. small cap fund, one international stock fund, and one bond fund. Those are great building blocks for a long-term portfolio.

Beyond that, it’s hard to get in to specific advice in a blog. So let’s try this. If you have a quick question on your 401k just ask. I will make it very easy for you. Email me at [email protected]. The first five people to reach out to me can have an absolutely free review of the investment choices in their 401k plan.

Look for a future post that comments on the decision of regular or Roth 401k and how much you should be contributing.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.