You're poring over your 401(k) retirement plan and wondering why it hasn't moved much lately. More importantly, you want to know if there's anything you can do about it.
The answer is yes, just be prepared to do a bit of homework. Your retirement account can do better than the typical 401(k).
Many investment advisors don't recommend moving money around in your 401(k) at all; they often steer eventual retirees toward such investments as target-date mutual funds that try to give investors a decent return.
You've probably seen them - they're the funds with, well, a date in the distant future attached to them. The date usually is the time when the investor retires. Along the way, fund managers usually seek aggressive growth at the outset if the target date is further away, then get more conservative as that date approaches.
"We've seen really good success with target-date funds," said Judith Ward, senior financial planner for T. Rowe Price ( TROW ). Ward doesn't recommend a more conservative vs. aggressive strategy, but says that for the unseasoned investor, target-date funds can come in handy. That's particularly true among millennials, who are just starting out and are new to investing.
"They just don't know what to do," she said. "When they're on the phone, they're asking, 'Just tell me what to do.' "
Three T. Rowe funds with a target date of 2030 have returned somewhere between an average annual 7% and 9% since their inception in late 2002. Ward cautions, though, that even target-date funds can be susceptible to market downturns. In fact, two of the T. Rowe 2030 funds have lost money in the last year.
David Blanchett, head of retirement research at Morningstar ( MORN ), agrees. He says some target-date funds dropped as much as 40% during the 2007-09 recession. His conservative vehicle of choice is an index fund. He notes that those funds usually have lower costs than more aggressive funds.
But if you do choose something more aggressive, he says, "I would look for some external validity to the quality of the fund."
Morningstar, for instance, offers Olympics-style ratings of gold, silver and bronze, he says. Other brokers have some sort of rating.
Then there are some who advocate more aggressive investing in your 401(k). Craig Wear, founder and president of Q3 Advisors in suburban Houston, says high returns are out there for those who work for them, but they can't be found in such vehicles as target-date funds. Wear also runs the website My401kinvesting.com .
"They do nothing to move beyond the sectors that may be showing momentum," Wear said. "I just don't agree with that methodology."
Since many 401(k)s allow investors to freely move between funds at little or no cost, they can put money into more aggressive funds when markets are bullish, then into safer funds when the sell-off hits.
But many 401(k) investors decline to move their money around. He says only 7% made changes between 2009 and 2015.
"I don't think that's the right way to go," he said. One method that can yield greater returns is divert 401(k) money into safer, more conservative funds when the market is in a downturn. When it starts going up again, then put that money into more aggressive instruments, he says.
"That's what our simple trend and rank portfolios do," he said.
Investors can look to see what funds are investing in the hottest stocks such as, say, Facebook ( FB ) or Amazon ( AMZN ) - two stocks now on Investor's Business Daily's Leaderboard. But he says it may pay to look for funds investing in the sectors that include Facebook or Amazon.
"I think it's a great strategy," he said.
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