Deschutes 401(k) Advisor
Sensible Solutions for Retirement Planning
2Q 2001
Time for a 401(k) tune-up?
The past year has been unsettling for 401k investors, especially those of us
who had been lulled into investing complacency by 10 years of a rip-roaring
stock market (for many of you, your only exposure to the market). 401k plans
have been thought of as a “no-brainer” by many. Just sign up and watch
your retirement fortune grow.
We wish it were that simple. Too often we see 401(k) participants making crucial mistakes in preparing for retirement. Here are some of the biggest mistakes we see. So, take a good look in the mirror.
Mistake #1: Cashing out a 401k account when changing jobs
It may be only $4,000 now, but a look at the chart below will show you what
you would have if you let it grow for 30 years (and continue to save). Don’t
let the temptation of a new SUV lead you astray.
| Mistake #2: Missing out on a match If your company matches $.50 for each dollar you save on up to 6% of your pay and you contribute only 3% of your pay, you are missing out on “free” money. If you make $30,000 per year, this amounts to an additional $900 per year that you are passing up. If you consider the tax-deferred growth of the investment, you are missing out on even more. |
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Mistake #3: Not diversifying enough
36% of 401k participants invest in only one fund and another 19% in just two
funds. If you are invested in only one or two funds and one (or both) performs
poorly, just where does that leave you?
Mistake #4: Not re-balancing the portfolio
Diversifying one-time and calling it a day isn’t good enough, but most
of us do just that. 80% of participants have never re-balanced their portfolio’s
asset allocation.
Do you see yourself? Read on for our advice on how to keep your retirement dreams alive through bulls and bears (and job changes).
Retirement Dreams Can Be Saved
Our advice for keeping on track during good times and bad
1. Get your company match (you earned it!)
Your employer considers this part of your benefit package. If they match on
up to 4% of your pay, then defer 4%. Of course, sometimes life circumstances
do keep us from saving as much as we like—we have to pay the bills after
all. Save as much as you can.
2. Diversify, diversify, diversify.
We say this every 3 months and will continue to do so. Asset allocation is overwhelmingly
the largest single contributing factor to the return on your savings. Recent
market volatility is a harsh reminder that anyone with less than 10 years until
retirement should not be 100% invested in stocks. As the following chart illustrates,
timing the market doesn’t work.
3. If your plan offers model portfolios, use them.
Model portfolios (or lifestyle funds) are custom portfolios created for your
plan utilizing the mutual funds within your program. The models are designed
by your plan’s investment advisor and are reviewed on a regular basis by
investment professionals who are trained to do so. Let us help you. See our
current recommendations.
4. Rebalance your portfolio at least annually
This will make sure you assess your goals each year and that your portfolio
stays attuned to your investment strategy. If large cap growth funds do better
than your other investments in a given year, then at the end of that year you
will definitely own too many growth stocks. One look at what happed with growth
stocks this past year can remind you why it is so important to not be too heavily
invested in any one category.
Hint: If your plan has lifestyle portfolios, you can skip the re-balancing. We do it for you automatically.
5. Take advantage of your plan’s communication services.
Attend the educational meetings provided to your plan by Deschutes Investment
Advisors. At these meetings, you will have access to a licensed investment professional
who can help you wade through what seems like murky waters. Utilize the tools
and information provided at deschutesadvisors.com. The newly redesigned site
includes all of the tools mentioned plus great links to interactive tools and
articles from the top financial sites. You can even send an e-mail request for
a Deschutes investment consultant to review your asset allocation if you’re
still unsure.
6. Don’t cash out your 401k if you change jobs!
Instead, take that money and roll it directly into a rollover IRA account or
into a new employer’s plan. If you cash it out, not only will it cease
to grow, the IRS and local government will tax it (and penalize it if you are
under 59 ½) and you will walk away with as little as 50% of it. Borrowing
might be a better alternative if you need short-term cash (and your plan allows
it.)
So, get busy now and you can relax for the next 12 months knowing you’ve done all you can to ensure the retirement you dream about.
The models below are our current recommendations for short-term/conservative, moderate, and long-term/agressive investors.
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Short-Term Strategy
(0-3 years until retirement) |
Moderate Strategy
(3-10 years until retirement) |
Long-Term Strategy
(10+ years until retirement) |
The Deschutes 401(k) Advisor is a quarterly publication educating 401(k) plan participants on the current issues related to retirement planning and investing.
Deschutes Investment Advisors is an independent firm dedicated to developing optimal strategies for corporate retirement plans, endownment and foundations, and individual investors. We can be reached at 503.223.2500.
Editor: Katrina Bell
Editorial Committee: MacGregor Hall, Bryn Torkelson, Dan Sholian, Jim Titus,
Dennis Munsey, Diane Bella, Chris Nelson, Karen Price