Most have multiple retirement accounts: 401K with an existing employer, 401K with a previous employer, an IRA which is the result of rolling over an old 401K plan. Most of us also don't pay enough attention to any of these funds that are going to be the bedrock of our retirement.
More can be done to increase our retirement nestegg. An additional 6% return doubles the size of that nestegg in a decade. If you have neglected retirement plans, it's likely that you can get more out of them and build your retirement payout.
Fear driven from a lack of knowledge is the enemy. IRA's have too many options and 401K's may not have enough. In either case, not knowing what selections to make results in inaction and the retirement plans linger in the dark. Review your latest 401K statement (or IRA) to see what your three and five year annual rate of return is (ARR). If your ARR is below 3% there is upside for you.
SIB (Simpler Is Better) - market index funds from key asset classes that can be used to measure historical returns - are going to be used to evaluate the upside potential and determine whether it's worth taking any action.
The SAA (Strategic Asset Allocation) --buy and hold strategy represents what many people may end up with as there is little thought put into which asset classes are represented but these are the most likely ones to be covered.
Over the past decade 'buy and modify' (Tactical Asset Allocation or TAA) evolved whereby you keep the same asset classes but you may change the ratios depending on market conditions. For example a 60% bonds, 20% US stocks and 20% international stocks portfolio may see the bond and US stock ratios increased at the cost of the international stocks when international economies are faltering.
We compare the results of a 5 asset class SIB portfolio with low cost ETF funds against a leading 401K plan. You can plug in your own numbers for your own 401K or IRA.
A five asset class SIB implemented with Vanguard ETF's with a moderate risk profile has delivered 5 year annual historical returns of 8% for strategic asset allocation and 14% for tactical asset allocation. Contrast this with the IBM retirement plan of 5% and 11% for the same strategies over the same period. Be aware that these are comparisons of like strategies. So, if you were using buy and hold (strategic asset allocation) with the IBM plan, you would be in the 5% range and if you wanted to use tactical asset allocation with and IRA you would be in the 14% range - that is a big difference.
The takeaways? Get your latest 401K and IRA statements and see your annual rates of return - some sites calculate this for you. Compare what you are getting with what's possible. Decide what you are going to do about it. Remember, you are talking about your retirement.
MyPlanIQ the only provider of advanced investment strategies totally customized to personal risk profile and plan funds.
-Simon Napper
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