Cleaning Up Your 401(k)
Posted February 25, 2009 by Bernz
If you are like most employees who have a company-sponsored 401(k) plan, you filled out all the paperwork when you first signed up, chose your investment funds from the list provided, and proceeded to forget it from then on. In the last 12 months, it is likely that every time you take a peek at your plan, it has gone down in value yet again. Best to just not look at it and hope for a miracle, right? Wrong!
While there is not much that you can do about the global recession or the sorry state of the stock market, you can take charge of your retirement funds, especially your 401(k). Every 401(k) has an option to buy and sell the underlying investment funds every so often. You may be able to make changes to your plan every three months or even every day. Find out when you will be able to change out your investments and then take some time to know what’s going on with your existing choices.
One of the keys to making the right choices for your plan is to understand the costs of each of the funds. There are two basic fund types that you may hold in your 401(k), managed funds and index funds. Managed funds consist of a group of stocks or bonds chosen by the fund manager. The fund manager will buy and sell different investments for the fund as he or she tries to attain the best return for the investors. Index funds mimic a stock market index like the Dow Jones Industrial Average. The fund holds the exact stocks that make up the index and buying or selling only happens when the index changes. Both types of funds have different fees and expenses that are withdrawn from the fund. Any money taken out of the fund reduces the return to the investors. Managed funds tend to have higher fees because of the active trading in the investments. Review each of your funds to find out what the fees are. They are usually expressed as a percentage of the asset value of the fund. You may want to trade out of high-fee funds to increase the overall return on your 401(k).
Reviewing your 401(k) plan at least annually and cleaning house makes fiscal sense and will give you greater control over your retirement funds.
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