A Re-Balancing Act

Here is your October monthly reminder: Time to look at that 410(k) of yours!

Time to open those paper statements you’ve put aside for the last few months and get back on track.  Unless you’re one of the few attentive ones out there, log onto your account and take a good glimpse of your 401(k)/403(b)/457 plan.  It is important to look under the “hood” of your investment options to find out how they are managed, what the management fee is, and if the portfolio manager has left the company. 

A lot of 401(k) plan sponsors are using target date investments, which utilizes an allocation style of investing.  As you get closer to retirement, they typically become more conservative by investing more in bonds than in stocks.  If you do your own allocation, you should think about your own financial situation to decide how to allocate your money in the plan and where to invest your contributions.  If you are getting closer to retirement or you are dealing with some health issues, it might be time to become more conservative.  If you are just starting your career or a new job, you might want to be more aggressive.  Usually, people who are about to retire, do NOT want to lose half of their money as many did during the 2008 Financial Crisis.  Because guess what happens next…you’ll be back at work trying to replace that lost money, angry and probable bitter.  Or you can always move in with your children, it’s their turn to support you right?

Remember when you are contributing to your plan, you are using an investment term called dollar cost averaging.  Trust me, you will sound so fancy if you use this term.  So what is DCA or dollar cost averaging?  It’s when you invest the same amount of money into an investment on a recurring schedule.  If the price of the investment that day is lower, you end up buying more shares, and if the price is up that day, you buy less.  This allows you to average into a security at different prices, and smoothing out the high points and the low points. 

It seems a good amount of people will look at their investment options, and chose what did the best the past year.  There are a few problems with this approach, one being that every investment performs differently with various markets cycles.  Most of the time, you will end up chasing after a return that even an Olympian can’t catch.  So no, you in your work stilettos won’t snag it either.  To give you some examples of this, here are a few sectors with their 2015 return and their year to date return as of August 12, 2016:

  1. Basic Materials -8.4% 2015, 12.8% YTD 2017 *Dow Jones Basic Material Index
  2. Energy -21.1% 2015, 16.5% YTD 2016 *S&P Energy Index
  3. Utilities -4.8% 2015, 16.4% YTD 2016 *Dow Jones Utility Average 

*Performance based on Morningstar.

You can see what a difference a year can make on different sectors of the stock market.  Bonds are the same in that they all have an array of returns depending on when and how much interest rates rise or fall. 

I will finish with your 401(k) reallocation or re-balance checklist:

  • Look at what each investment is costing you,
  • Investigate the portfolio managers and their team,
  • Should you become more conservative or aggressive based on your own financial situation,
  • Which direction does the stock market and bond market seem to be trending in (I know easier said than done),
  • Decide how much to contribute and where to invest those contributions, and
  • Make sure you are comfortable with your decisions or just look into your crystal ball!

You can do all this work, or you can just ask your financial advisor or me to help.  Bring them your last statement and the investment options.  We offer this service to our clients and like to review it quarterly with them.  And as always, if you have questions or feedback feel free to email  Jessica.Weaver@raymondjames.com with them.  Happy Re-Balancing!

Jessica Weaver, CFP®, CDFA™, CFS®
Wealth Advisor

Any opinions are those of Jessica Weaver and not necessarily those of Raymond James.  Expressions of opinion are as of this date and are subject to change without notice.
Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Diversification and asset allocation do not ensure a profit or protect against a loss. Information provided is general in nature, and it not a complete statement of all information necessary for making an investment decision, and it not a recommendation or a solicitation to buy or sell any security.  Dollar cost averaging does not assure a profit and does not protect against loss.  It involves continuous investment regardless of fluctuating price levels of such securities.  Investors should consider their financial ability to continue purchases through periods of low price levels.  The process of re-balancing may carry tax consequences.