Do you guess when it comes to your 401(k) investments? The odds are, you do. The most popular investment choices in a 401(k) are the 401(k)s default option or a Target Date Fund. Does either of these sound familiar?

There is no reason to feel bad about your 401(k). If you are guessing; you are in good company. Why should you stop guessing? For starters, the chance that a single default option is the best choice for you is pretty slim. That does not mean it is a bad investment; it just means it is not right for all your money. The same goes for your company match which usually goes into company stock. It is okay to own company stock, as long as it is not a disproportional amount of your total account. Asking a colleague may be useful, but again what is right for them is not likely the best choice for you. A self-selected portfolio tends to be all in a few funds or a little in each available fund. Neither of these options is likely your best bet.

You know there has to be a better way. A portfolio should include domestic and foreign equity funds. Fixed income funds should also be part of a portfolio. Many 401(k) plans have balanced funds, which have equities and fixed income in the same fund. What is an investor to do? Most people do not want to become a part-time investment analyst. 401(k)s are sneaky. You start out with a zero balance. You think it is small potatoes, as it grows and you do not think about it. One day you wake up and have hundreds of thousands of dollars invested, and you are not sure why you own what you own.

The answer is to build a well-diversified portfolio. The question is how? If you do not do it yourself, you need help from an advisor. The problem is most advisors don’t offer a service to manage your 401(k). The 401(k) is out of their control and tough to administer. In most cases they can look at your choices and give you some direction and then you are on your own to install their plan. If you are lucky, the advisor might go online with you and help. In some cases, they may even go online and do it for you. There is a whole host of reasons why that might not be the best idea, which is a discussion for a different time. Building a well-diversified portfolio is the answer, and the key is the monitoring of it. On other investment accounts people get professional help, your 401(k) should be no different.

You need a system to review your 401(k) account. Rebalancing your portfolio (1 or 2 times a year) is a good idea. Do not fall into the trap of “I’ll just leave everything alone because it is growing and I do not want to mess it up.” That kind of thinking in 2008 would likely have had 60-year-old working a few more years than desired.

I can set up a diversified portfolio. I can invest, rebalance and track your 401(k) for you. If you like to learn more about how the Active Management of your 401(k) would work, please give me a call. We can determine if it is right for you.

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