How to Manage Your 401k Like a Pro

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Are you currently managing your own 401k? Do you feel like you have a good handle on what you are doing? For many, they most certainly do not, but they also don’t want to pay the high fees of someone else handling their money for them. So instead, they just choose a few options at random (or because that’s what their friend at work told them to invest in) and hope that these moves will earn them a decent return in the long run. Does this sound familiar? If it does, don’t feel bad, but take this time to actually do something about your lackluster investments! As your first order of business, I would sign up with a free investment tracking service like the one below so you can easily discover where your money is invested and how much money you are earning (or aren’t currently earning).

A note from Derek: The banner below is an affiliate link, but Personal Capital has some amazing software features that can help you build wealth with your investments.

how to manage your 401k

How to Manage Your 401k Investments

Once you have set up your account and synced up your investments, scroll to the bottom of your home page dashboard to find your portfolio allocation. It should look like the screen shot below:

how to manage your 401k

As a base for a beginner investor, the Millionaire Teacher Andrew Hallam, teaches us that we should be investing in Index Funds, which are basically mutual funds, but simpler since they are set up just like certain Indexes, like the S&P 500 or the DOW. And since they are simple, they cost much less than a traditional investment, but quite often earn just as much money as a complexly traded Mutual Fund.

Secondly, Andrew teaches us that we should have our investments allocated into three basic types of investments:

  • 35% in a U.S. Stock Market Index
  • 35% in an International Index
  • 30% in Short-term Government Bonds

This, of course, is just a broad generalization, but is a great starting point when looking at your investments. When you view your investment allocations (meaning, that screenshot photo above), what does it tell you about how many of your investments are in bonds? What percentage of your investments are in U.S. stocks? And how many dollars worth do you have invested internationally? Once you understand how you currently are investing, you can then tweak your investments to earn even more money each year.

Change Your Bond Allocation with Age

20141103 - percent bond allocation

If you want to know how to manage your 401k like a pro, you must learn to protect your investments, and this comes with learning how to allocate your funds properly. Above, Andrew has told us to invest 35% of our money in the U.S, stock market, 35% int he International market, and 30% in short-term bonds, but this is only sound advice if you are approximately 30 years old. If you are 50 years old, then your investments should look much different.

As a rule of thumb, bonds are a much less volatile investment. They will likely earn you less money in an up market, but if the market is tanking, the value of your portfolio will probably remain stable in bonds (and may even increase in value). When you get older, the percentage that you invest in bonds should increase. In fact, many say that your percentage of bonds owned should equal your age. In other words, if you are 40 years old, then 40% of your investments should be in bonds. If you are 65 years old, then 65% of your investments should be in bonds. Make sense? It is a safe way to invest, and you will still be earning a healthy income.

Remember to Rebalance

I know that I have mentioned this in articles past, but you must remember to rebalance your 401k account!  By setting up an automatic rebalance in your investment page you are telling the system to buy low and sell high. For you see, if the majority of your money has found its way into the U.S. stock market, this means that those stocks recently went gangbusters and will likely tumble in the future. You’ll want to sell these. On the opposite spectrum, you might have a small percentage of bonds because they recently took a dive. It may sound crazy, but you want to buy up a ton of these bonds because they will most likely increase tremendously in value in the near future. Your rebalance does exactly this. By setting up your rebalance, you are buying low and selling high, which will severely increase the value of your overall retirement fund!

Are you ready to manage your 401k like a pro? How well have your investments done lately?

Article tease alert! The next investment post will outline the Money Movement Strategy. 🙂

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6 comments to How to Manage Your 401k Like a Pro

  • Ok so I auto rebalance, check.
    But so confused on my Personal Capital review. It says we are over aggressive. Problem is at 41, we only have a little over $10,000 so far. Late bloomers I know,I know, ugh. So I feel like we need to be aggressive especially since markets are good right now and then just monitor for when market drops too much, then switch to bonds more.
    What do you think?
    Dawn recently posted..Goals for 2015, finally…

    • I understand your desire to invest aggressively, and honestly, with 25 years to go before the traditional retirement age, you can probably afford to be a little aggressive (key word, little). If I were you, my main concern would be more with cash flow. Beef up your investments with lumps sums of cash by decreasing your expenses or increasing your income. Wouldn’t you feel like you could ease back on your aggressive investments if you were putting $800 in your retirement fund each month? If you have more questions, please feel free to reach me through my Contact tab at the top of this page. Thanks for the great question, Dawn!

  • […] track record of earning money this way, then go for it. But, if you can only wrap your head around mutual funds and bonds, then keep your money there. Rather than get suckered into a supposed lock of a deal that will earn […]

  • Cristina

    I actually use blooom.com to balance my 401k because I have no idea what the different funds really mean. I logged into Fidelity just now and they recommend something totally different from blooom.com. Nerdwallet likes blooom.com 🙂 Any opinion?

    Fidelity recommends:
    Domestic Stock49%
    Foreign Stock21%
    Bonds25%
    Short-Term5%

    Blooom.com has me:
    Domestic Stock62%
    Foreign Stock29%
    Bonds5%
    Short-Term2%
    Unknown0%
    Other2%

    • Fidelity looks way too conservative to me. Bloom looks much better. Ultimately though, you should go with your own opinions on how you’d like your investments to be allocated. Did you sign up with Personal Capital to see the breakdown of all your funds? It’s unbelievably helpful.

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