What Is The Best Investment Mix For 401k

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Be Aware Of The Fees Associated With Your Plan

Efficiently choosing 401k retirement investments.

The goal of investing in a 401 plan is to grow your money over time through investments. Because its an active investment , there are fees included. Your plan negotiates these fees on your behalf. They can include amounts needed to cover administrative costs and management expenses. While you dont have complete control over the fees in your 401 plan, its important to be aware of what youre paying. If youre choosing your own investments, look at fees and returns to ensure that you get what you pay for.

Time To Give Your 401 A Checkup

If you’ve put your retirement plan on autopilot, you may be overdue for a course correction. Here’s what to do.

The secret to savings success in 401 retirement plans has long been cruise control. Youre often automatically enrolled when you join a company, your money is deposited regularly in an investment portfoliotypically a target-date retirement fundand you leave well enough alone.

Its been easy to stick with this hands-off approach through most of the past decade because the stock market has delivered strong returns.

But in 2022 your 401 statement is probably showing something quite different: negative returns. This year stocks have dropped sharply, giving up 16.1 percent through the third quarter, and the typical bond fund fell 11 percent.

Of course, market downturns are part of a normal market cycle. Still, its a reminder that staying on track to a comfortable retirement means making periodic tweaks to your portfolio along the way.

If you havent reviewed your 401 plan lately, it may no longer reflect the level of risk you want to take or your current financial situation, says Andrew Sloan, a certified financial planner in Louisville, Ky.

For those closing in on retirement, you need to pay special attention to your fixed-income investments. Even with the poor performance in bonds this year, they will provide long-term stability and diversification to your portfolio, Sloan says.

Historical Returns Since March 2007

  • substituting RYMTX for DBMF
  • DBMF is expected to deliver FAR BETTER returns

Managed Futures Since June 2019

Managed futures as an asset class are highly negatively correlated to both stocks and bonds. That’s why they are such great diversifiers.

But note how RYMTX, a 2 star rated fund, gets crushed by 4 and 5 star rated DBMF, GIFMX, PQTAX, and AMFAX.

Managed Futures Since February 2016

Managed Futures Since January 2014

Managed Futures Since August 2010

RYMT’s historical returns since 2007 are about 1% per year and -1% CAGR adjusted for inflation.

  • GIFMX, PQTAX, and AMFAX historical returns 6.5% = 4.5% adjusted for inflation vs 2% long bonds
  • DBMF historical return is 5% higher than its peers, 9% to 10% potential long-term return = 7% to 8% CAGR inflation adjusted return
  • DBMF can potentially 4X long-term real bond returns
  • and conservatively at least 2X them.

The future doesn’t repeat, but it often rhymes. – Mark Twain

Remember, “past performance is no guarantee of future results.”

But studies show that blue chips with relatively stable fundamentals offer predictable returns based on yield, growth, and valuation mean reversion over time.

Bank of America

16 years is a time frame in which 91% of total returns are due to fundamentals, not luck.

But with 12% annual volatility, 33% less than the S& P 500 and 50% less than the Nasdaq.

Intra-day the S& P 500 hit -56% in the Great Recession while ZEUS bottomed at -23%.

  • a retirement dream portfolio
  • Nasdaq -35%S& P -28%

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Determine Emergency Fund Needs

Unplanned expenditures like a new roof, auto repairs, or big vet bills can crop up in retirement just as they do when youre working. Retirees can address these unplanned expenditures in one of a few ways. First, they can include a substantial cushion when forecasting their in-retirement expenses that will allow them to cover unbudgeted expenses out of their planned portfolio withdrawals. Alternatively, they can maintain a separate emergency fund to cover unplanned expendituresor periodic splurgesas circumstances warrant. If they go this route, theyd want to add the emergency fund to their cash total.

Say, for example, that Paul and Amy decide they want to hold $25,000 in cash for emergency expenses if they are also holding $64,000 in cash for regular expenditures, their total cash amount would be $89,000 .

Depositing Cash At Retailers

The Real 401k Plan Manager

Various online banks partner with the Green Dot Network, which enables you to deposit cash into your bank account at participating stores such as 7-Eleven, CVS, Dollar General, Walgreens and Walmart. To do so, just hand the money to the cashier. Youll also need to either present your debit card to the cashier or have them scan a barcode in your banks mobile app.

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Federal Advisor Technology Fund

Your 401 could benefit from a sector fund like FADTX. For the past 10 years, it has delivered high returns. In 2020, FADTX posted a 77.38% return. This fund concentrates on U.S. tech companies. Its most prominent holdings are Microsoft , NVIDIA and Apple .

FADTX has a high expense ratio and a low net asset balance. But its 10-year AAR ranks in the upper quintile in its category it has the highest score of 5 on the YTD Lipper Rating. Since sector investments have a tendency to outperform, FADTX would make an excellent complement to your core holdings in your 401. The table shows FADTX stats.

Expense Ratio

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How To Invest Your 401

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Nothing is more central to your retirement plan than your 401. It represents the largest chunk of most retirement nest eggs.

Finding the money to save in the account is just step one. Step two is investing it, and thats one place where people get tripped up: According to a 2014 Charles Schwab survey, more than half of 401 plan owners wish it were easier to choose the right investments.

Heres what you need to know about investing your 401.

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Can Your View On Risk Change Over Time

Revealing My ENTIRE 401K Portfolio How To Pick Investments for YOUR 401K

A typical 401 plan will have eight to 12 options but some may have more or less than that. You can rebalance your 401 assets to ensure they reflect the asset allocation and risk tolerance, you want. You can also make changes to your 401 investments to reflect your evolving risk tolerance. Check with your employer or HR department to see how often you can make changes to your 401 investments.

Read Also: Can Financial Advisors Invest Their Own Money

Save Extra To Invest In Yourself

In addition to whatever you contribute to your retirement accounts, set aside another 10% of your income in a separate bank account, said Matthew Grishman, principal wealth advisor at Gebhardt Group.

I recommend that this account be earmarked for helping people invest in themselves, to become the best possible version of themselves, he said. Whether its taking a class, learning a new craft, traveling halfway around the world to learn how to cook a new regional cuisine something that deepens who you are and what you are capable of becoming.

Continue Contributing To Your 401 And Other Retirement Accounts

Steadily contributing to your 401 is another way to protect it from future market volatility. Cutting back on your contributions during a downturn may cost you the opportunity to invest in assets at discount prices. Meanwhile, maintaining your 401 contributions during a period of growth when your investments have exceeded expectations is equally important. The temptation to scale back your contributions may creep in. However, staying the course can bolster your retirement savings and help you weather future volatility.

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Why I’m Investing 100% Of My 401 Into 5 World

In 2023 I’m going to rebalance my portfolio around five world-beater blue-chip assets based on the Dividend Kings ZEUS retirement portfolio strategy.

  • 33% blue-chip ETFs
  • 33% hedging assets
  • 33% individual stocks.

ZEUS = Zen Extraordinary Ultra SWAN and let me show you why it lives up to that name.

In fact, ZEUS is the king of sleep well at night retirement portfolios.

Now there are infinite combinations of the ZEUS portfolio.

Here is our family friend Rose’s ZEUS High-Yield Ultra-Low Volatility portfolio.

You can build a ZEUS portfolio to optimize for any goal you want.

  • maximum safe yield today
  • maximum safe retirement income over time
  • maximum long-term returns
  • safety and quality.

You can use anywhere from 1 stock exchange-traded fund to as many as you want .

You can use using hedging ETFs like EDV , DBMF , SHY – cash.

And you can buy anywhere from 2 to 20 individual blue chips, which is the key to this strategy.

  • the bonds, managed futures, and cash help you sleep well
  • the stock ETFs ensure you can’t lose all your money
  • the individual blue-chips turbocharge your yield, growth, and total returns.

Let me show you how I built my personally optimal ZEUS 401 retirement portfolio.

  • my Roth IRA is the same thing, just 1/3rd the size.

Reassess The Old 60/40 Adage

How to Read a 401(k) Statement and Understand It

In the past, most advisors would suggest an allocation of 60% equities and 40% bonds to balance out an investment portfolio. Times have changed, especially in the post-pandemic economy, and the old benchmark might need rethinking, say some experts.

The current market is different from previous periods of volatility because it is affecting stocks and bonds, says Walsh. In the past, bonds could serve as a safe haven during periods of stock market volatility, but not this time. Bonds are holding up better than stocks, but a 60/40 portfolio is on track for one of its worst years ever. When combined with multi-decade high inflation, this is especially troubling for those in or near retirement.

This year has seen a historic rise in interest rates to combat high inflation.

As a result, high-quality fixed income isnt providing investors with the downside protection theyre used to, as bonds are down nearly as much as stocks in 2022, adds Presogna.

With bonds not being the mainstay they once were, investors will need to get creative to invest defensively if they suspect a further crash is on the way.

Again, for investors with long time horizons, experts seem to agree that its likely best to stay put and ride the wave out while making sure youre always diversified.

Those with retirement quickly approaching may want to consider rolling any of their old 401 accounts into either IRAs or annuities .

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Managing Your Investments Will Be Easier

If you leave multiple jobs throughout your career, you could end up with lots of different 401 plans with different employers. As Ramsey explains, keeping track of all of these old accounts could be really difficult. But if you move all of those accounts into one IRA, it will be easier.

“The more scattered your retirement accounts are, the harder it is to make good decisions about your investments — and that can affect your retirement future,” Ramsey warned.

But if you roll over your accounts and put all the money into one IRA, Ramsey explains you won’t have that problem. “Youll be able to manage your retirement funds better by having them all in one place.”

Keep Some Cash On Hand

Some financial professionals recommend retirees have enough cash or cash equivalents to cover three to five years worth of living expenses. Having cash reserves can help pay for unexpected expenditures that a fixed income may not otherwise be able to cover.

Cash on hand can also mitigate whats called sequence of returns risk. Thats the potential danger of withdrawing money early in retirement during market downturns and, thus, permanently diminishing the longevity of a retirement portfolio. By selling low, the longevity of the investors portfolio is jeopardized. However, with cash reserves, retirees can withdraw less money from their 401 during a market decline and use the cash to cover living expenses.

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Determine How Much To Park In Cash

Assuming the planned withdrawal rate is sustainable, a retiree can then begin staging the portfolio by anticipated spending horizon. Money for the next few years goes into cash not only have yields on cash instruments come up recently but cash wont budge in value, either, meaning the retiree wont be forced to change her plans because shes had a loss of capital. In the Bucket framework that Ive discussed on Morningstar.com, Ive earmarked two years worth of spending needs for cash.

To go back to the Paul and Amy example, they would need a minimum of $16,000 in cash or up to $64,000 in cash.

Dont Overlook Your Beneficiary Designation Form

Investing 101: Stocks, Bonds, 401K, Cash, Portfolios, Asset Allocation, Etc.

Anyone whos filled out a life insurance application is familiar with a beneficiary form. This is where you state who will receive your 401 money in the event of your death. If youre married and have kids, this probably wont be a tough decision.

However, this is one form people tend to truly fill out and forget. In many of cases, people have divorced and are remarried, but their 401 would go to their ex if they died. Other times, the investor may have had children, but neglected to add them to the form.

Your Action Step: If its been a while since you filled out your 401 beneficiary form, contact your 401 plan manager to make sure those funds end up where you want them.

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Resist The Urge To React To Short

2:19

Hi Im Judith Ward, vice president and thought leadership director at T. Rowe Price.

Coming into 2022, we were cautious about the markets prospects. And so far in 2022, security markets have been highly volatile.

But our research suggests that even if investment returns are lower in the near future, you dont need to change course if you are saving appropriately for retirement. However, workers over 50 might benefit from saving more.

The good news is, we found that a large majority of workers participating in their workplace 401 plans are not reacting to market events by changing their investments.

And, the amount theyre contributing to their 401 plans has remained relatively stable.

There are a number of things you can do to cope with expected lower returns and market volatility. First, build up an emergency fund to help prevent needing to liquidate your investments for emergencies or tap in to your retirement accounts when markets are fluctuating.

Second, maintain an age-appropriate asset allocation. Younger investors, for example, should have higher allocation to stocks and increase the allocation to bonds over time as retirement approaches.

Finally, if you are close to or in retirement, you should review your retirement spending plans. Our research suggests that a more conservative spending approach would have worked well for those who retired into bear markets in the past.

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