Does your company offer a 401k account? If they do be grateful because you are with a company that isn't following the trend.Less and less companies are offering 401k benefits. Make sure you take advantage of your companies 401k as it is one of the smartest things you can do for your retirement. If you are self employed you might be looking to set up your own 401k account. It is wise to set up a 401k account for yourself if you are self employed. Take advantage of as many retirement options as you possibly can. The more prepared you are the better your retirement will be.
I was reading through different articles about retirement as I usually do but one article struck me more than others. I thought I would share some of the insight from that article along with my own insight to help you plan for your retirement the best way possible.
Insights from the article
Some good news came out last week that the average balance of Americans' 401k accounts had grown to a $89,300. That number is nearly double the average that was in those accounts five years ago.
While that is some great news Stephen Gandel, the author of the article goes on to talk about something that is fundamentally wrong with one of the most popular options out there for 401ks. The so called target-date funds. Roughly half a trillion dollars are invested in these fund, mostly through 401k accounts.
What is a a target-date fund? They are supposed to give you a per-calibrated portfolio based on your age and the age when you'll retire. The portfolio is typically spread between stocks and bonds. It is supposed to be riskier and heavier in stocks at first and the closer you get to retirement the more bonds and typically less risky your portfolio should be. This is not flawed in concept but it is more flawed in execution. There seems to be no uniformity in how these portfolios are put together. A 2015 target-date retirement fund from two different brokerages can have very different holdings of stocks and bonds.
He goes on to say that there was some good news from the Wall Street Journal stating that target-date funds had a redemption year last year. Target-date funds, even those that were close to their target retirement year, did well in 2013.
Stephen says this really isn't good news. Why so? He said that they performed well because they held too many bonds, relative to what they should. Bonds fell last year, which is usually rare. So the funds' good performance was not because they are safer than they seem. It is because they are riskier, putting more money in stocks than they should.
To read more of this article I am refering to check out A popular 401k choice is still badly broken
Why do I like this article? I like it because it shows some of the flaws that are occurring between these huge brokerages and custodians. Why would they do this? Why would they make your portfolio riskier than you thought? Simply because over time stocks perform better than bonds. Now to me they aren't really performing like target-date funds. The closer you get to retirement you want to feel safer with less risk. If a down year comes and you were to have more stocks than you thought you could loose much more than if you had bonds. Typically when stocks loose they loose at a much higher rate than bonds.
What does this really mean for you? It is very wise to know your stuff. It is great to know what you are invested in. One of the smartest things you can do is to take some of your retirement into your own hands. Nobody knows what you are looking for better than yourself. You are probably saying to yourself that it is way to hard and too confusing. It really isn't. With a self directed 401k or self directed IRA if you don't have the ability to set up your own 401k.
A self directed 401k gives you the ability to invest in alternative investments that most brokerages don't allow. With a self directed 401k you can invest in real estate, gold and a slew of other things. What is so great about gold or real estate in your 401k? It is a great way to diversify and a great way to invest in something other than the stock market. Many investors suggest that gold or real estate is a safer investment than stocks.
What should you do? Start now! There is no better time than now to invest in your retirement. If you aren't up to investing your retirement yourself then why not just take a small chunk and try investing a little in gold or something else you are interested in? It doesn't have to be a lot of money a thousand here or there.
A self directed 401k gives you many different options that aren't usually there. As the article I mentioned above suggests that there are some flaws with some of the current brokerages and how they invest your money. Take control today with a self directed 401k. self directed 401k information, Fund Your Business With A Self Directed 401k,
Contact us today for any questions regarding self directed 401k investing. We allow you to invest in your retirement the way you want.
Author: Nick Barker