|
 Financial
| Philip C.
Henry
Philip C. Henry,
ChFC, CFS is the President of Henry Wealth Management, LLC, an
independent financial planning firm located at 1370 Washington
Pike, Bridgeville, PA. He offers Securities and
Investment-Advisory Services through a non-affiliated firm, NFP
Securities, Inc., a Broker/Dealer, Member FINRA/SIPC, and
Federally Registered Investment Advisor. He may be reached at
412-838-0200 or at Phil@HenryWealth.com. The firm’s website is
www.HenryWealth.com.
Planning
Your 401K
Is Your Largest Asset on Target?
Target
Retirement Allocations within retirement accounts may be a
helpful choice
What is your
largest asset? Ask a business owner and he or she will likely
respond “my company.” Ask a homeowner and the likely
response will be “my home.” While your business or home may
indeed be your largest asset now, converting these into an
income stream to support retirement needs may be a different
matter. For many, the correct answer to the “what is your
largest asset” is your retirement account. What are you doing
to ensure that this potentially largest asset is being properly
managed?
Confused by
Investment Choices?
The amount that today’s workers will have as an available nest
egg at retirement will be greatly influenced by several factors,
including the amount they contribute, the amount of employer
matching, and the investment allocation selected.
Apparently, many
participants in 401k plans are confused as to what investment
option(s) to select and consequently avoid any decision. Recent
legislation now permits retirement plan sponsors to
automatically enroll employees who do not make investment
elections into “target retirement accounts.” These types of
investments are age-driven, so that an employee just starting in
his/her career, absent from making his/her own election, would
be automatically enrolled into an investment geared towards the
number of expected working years until retirement. An employee
in his ’20s would have a mix of investments more heavily
tilted towards stocks than would an employee in her ’50s. The
essence of target retirement accounts is that they incrementally
re-allocate assets into a more conservative investment mix as
the investor gets closer to his intended “target.”
Not all target
allocations are constructed equally
While target retirement accounts may help reduce investment
confusion by automatically enrolling those unable or unwilling
to make a decision, there are some caveats. Many 401k plans
offer investment options, including target accounts, from
leading companies in the industry. Disparities may exist between
investment options that appear to have common goals and
objectives. For example, when considering investment options
geared for an investor who plans on retiring on or around the
year 2020, one leading provider allocated 64% of its portfolio
to stocks, while the other more aggressively allocated 70% to
stocks. Therefore, not all investment options that appear to
have the same goal are created, or constructed, equally.
A target account
may not match up to your risk tolerance
A planned year 2020 retirement doesn’t necessarily mean you
should select a 2020 target investment fund. You may have a
desire for a heavier or lighter weighting towards stocks, based
upon your risk profile. Many 401k providers and financial
advisors alike assist their clients with a tool commonly
referred to as a risk tolerance questionnaire. Questions fall
into two main categories, the first being factual (your age,
planned years until retirement, amount of assets in retirement
accounts) and the other gauging feelings (how would you react if
your account experienced a loss in the event of a market
decline; would you sell, hold or look to buy more, etc). Points
are assigned to each response and one’s total score is the
basis for a recommendation.
Assume that your
score reflects a recommended allocation of 80 percent to stocks
and you indeed plan to retire in 2020. You should research the
options available for an investment mix that is appropriate for
your risk tolerance. In this case, a 2025 or 2030 target
investment may be more appropriate.
Summary
While target allocations can be quite useful, just be sure to
measure your propensity for risk, using a risk tolerance
questionnaire first. Then look for a target allocation that most
closely aligns with your goals. Your financial advisor may be
helpful in more closely examining all available investment
options that you are eligible to invest in, and to recommend a
strategy that includes or excludes target allocations. Helpful
websites also include www.401kHelpCenter.com as well as
www.FINRA.org. FINRA stands for the Financial Industry
Regulatory Authority, the largest non-governmental regulator for
all securities firms doing business in the United States.
Good luck on
targeting the best investment option(s) for what may be your
largest asset! |
'Tis
the Season
