New year off to a good start... check. Figure out 2021 budget... check. Fix your 401K...? Heed the tips straight from the Finny community:
🔥 How would you like to live in your retirement? The more you crystalize this the better, says Finny Coach and Founder of DSS Financial, Ilene Slako. How much will you need for the lifestyle you want to live in retirement? Having that clarity helps you figure out how much risk you should take with regard to your investments.
🔥 Check your allocation. How many funds do you hold? If you hold too many, you aren't doing yourself any favors and are probably over-diversified:
- keep it simple with a 3-fund portfolio or a target-date fund;
- select funds that match your risk profile and time horizon;
- leverage fund allocation tools your 401K provider offers.
🔥 What is the average expense ratio of your portfolio? It's known that "expensive" funds eat away at your return over time. Actively managed mutual funds can be very expensive. Best to keep the expense ratios of your retirement funds below 0.5%.
🔥 Rebalance regularly. Your provider should have an option for you to rebalance your portfolio on a regular basis (quarterly). Why is that important? Over time, your allocation shifts to hold a greater percentage of those funds that did better in your portfolio. In order to maintain your desired risk level and an allocation that doesn't take an outsized bet on funds that outperformed in your portfolio, rebalancing is key.
If your 401K provider doesn't give you suggestions for improving your portfolio, or you don't know how to implement them, check out Blooom. They offer a free 401K fund analyzer with recommendations to boot! Find out how you're allocated, how risky your portfolio is, and by how much you may be overpaying.
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