Rebalancing simply means adjusting the allocations to the funds in your account back to their original targets. The following guidelines explain why, when, and how to effectively achieve this. Over time, the difference in performance between funds in your k account can cause your asset allocation to look very different from your original plan. Plus, the participant would be five years closer to retirement and probably should be considering less risk fewer stocks , not more, in his or her k account.
Instead, had the participant periodically rebalanced the account during that period the risk would have been greatly reduced. Although the primary objective of rebalancing is risk control, it does not have to mean a significant reduction in return. That is a small price to pay for a significant reduction in risk—especially if the participant is nearing retirement. There are two general approaches to when you should rebalance your k account.
One is to rebalance on a regular time schedule, such as quarterly, semi-annually, or annually. When you started, you were told that if you put a certain percentage of each paycheck into your retirement account, the company would match that with a contribution of its own.
Seems pretty straight forward, you put money in, they put money in, you pick a few investments that will grow, and you set up automatic investing into the future. Bing Bang Boom, it took you ten minutes and you're done.
Pretty sweet right? For every paycheck you receive, you elect to have a certain dollar amount or percentage taken out and put into your retirement account. This is automatically taken out of each paycheck without you ever having to handle anything.
Even better, this money then gets automatically invested into whatever funds and at whatever percentages you choose. Again, this all happens without you having to take care of it during each pay period.
This is certainly a great feature and one everyone should take advantage of if it's offered. If you are driving your own k , automatic investing helps, but isn't enough for you to let go of the wheel and take a nap. The real estate fund has an annual expense ratio of 0. When automatically reallocating monies to funds with lower investment fees, automatic rebalancing can help you minimize your investment expenses in the long run.
For young retirement savers, those with low account balances, and those without the need for more complex wealth management services, automatic rebalancing can be a useful and affordable alternative to having a full-fledged financial advisor. More and more retirement plans are offering k robo-advisors , which provide wealth management based on algorithms and your answers to questionnaires and offer automatic rebalancing on an annual or quarterly basis.
In our example, the real estate fund may look like a big-time winner. Based on this short-term performance, trying to time the market or adjust investment could cost an investor between 1.
Remember that in our example, we assumed that you were 30 years away from retirement. And these are the pros whose day job is to make trades! Review your beneficiaries Probably the most common mistake is filling out those beneficiary forms, and then forgetting about them. Author Recent Posts. His vision for starting GWS was to deliver investment strategies and wealth management services typically available at the highest levels of wealth.
Today, clients benefit from these sophisticated financial services targeted to meet their unique needs. Related Posts. Posted in News , Retirement and tagged k , Barry Glassman , retirement , retirement plan.
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