Last week in Retirement Planning 101, I discussed the different types of retirement vehicles you could use to plan for retirement. Sometimes I think of these vehicles like a coffee cup. Each coffee cup has a different set of rules and regulations that the IRS lays out which sets the structure of the vehicle. A coffee cup doesn’t have to be used to drink coffee. You can put water, juice, soda, coffee, and much more in the coffee up. IRA’s work the same way. The IRA is the coffee cup, and you can literally put almost any investment you want into the IRA account.
Let’s first review your 401(k) plans before we get into IRA investing strategies. Most 401(k)’s will offer you three types of options. I have two very important rules you should try to follow in your 401(k). The first is to act your age. This means the amount of fixed or bond type investments should be around which your current age. The remaining number left would be in the equity side of your portfolio. The second rule is to be sure that you have checked the automatic rebalancing feature (quarterly) should your 401(k) provider offer this option. Here are your main three choices in the 401(k).
- Lifecycle or Target Fund Investment Strategies – These investments are structured to give you a particular set of years (i.e.- 2025, 2030, 2035) when you think you are going to ‘retire’, and get your investments set up where the investment company thinks a person with that time horizon should be properly allocated. Although I am not a big fan of investing your 401(k) this way, it is your easiest option to just put your 401(k) on auto-pilot.
- Build Your Own Portfolio – Most 401(k) plans will have somewhere between 10 to 50 options depending on how your employer sets up the plan. Usually the larger the employer, the fewer choices you will have in the plan. The plan will give you the track record of the history on how each investment strategy has done in the plan. The important part for you to research is the manager running the fund. Sometimes a fund can have a great track record, but have recently changed management teams.
- Self-Directed Brokerage Account – You will mostly find these at larger companies, but your employer may allow you to take all or some of your 401(k) and simply manage it yourself through the financial institution that handles your 401(k) plan. This option can be good for a savvy investor, or for someone who truly wants to get hired help to really actively manage your 401(k).
When it comes to IRA (and Roth IRA) investing, there is truly a smorgasbord of different kinds of investment strategies. Remember that just because you opened your IRA at a bank, brokerage house, or insurance company, you not required to leave that IRA where you originally opened the account. With IRA transfers, you can move that IRA to a new institution if you want to change advisors or investment strategy.
Since your IRA and 401(k) accounts could be the bulk of your retirement income in the future, take a step back in the 1st quarter of this year to see if you have the right strategy in place now based upon your risk tolerance, time frame, and other factors to make sure your strategy is suitable. It is important you empower yourself by understanding what you are doing with your money even if someone is giving you guidance along the way. If you don’t know what to do, go to our website at www.oxygenfinancial.net to schedule a FREE visit today.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
Phone 1.800.355.9318or 770.777.0427
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
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