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Torie knows, like millions of other people, that she must invest money in 401,000 plans (she has a couple) in 2015-2106 and beyond in order to retire comfortably. What She Also Needs To Know: 401,000 Asset Allocations, How To Choose And Manage Her Best 401,000 Investment Options, And The Outlook For 2015 And 2016. Let’s take a look at how she and you can make money (or at least do that) in 2015, 2016 and beyond Best of it) when you’re in the same boat.
While it’s been easy to make money investing in 401,000 plans over the past few years, it isn’t always the case. The first thing you and Torie need to do is set a goal for yourself (Tories will retire around 2040). Second, be honest about your personal risk tolerance. Tories is “moderate” – but definitely not aggressive! Third, review your current asset allocation of 401,000 to see if the investment options you hold are in line with your risk tolerance. Are you in the best 401,000 investment options and in the right proportion?
Finally, you need to understand that 2015 and 2016 could be a difficult time to make money investing in 401,000 plans. The reason: Weak economic forecasts make the best 401,000 investment options of the past vulnerable to losses. Stocks are expensive, so are bonds. Assuming your risk profile is similar to Tories’ (she would love to make money but avoid heavy losses) what can you do now to stay on track, make money, and avoid heavy losses when 2015 and beyond turn ugly ? We’ll use Torie as our example.
Several years ago, Torie decided she wanted to make money by investing in 401k plans but wanted to keep things simple. She had changed jobs once and was planning another change in the future. With both employers, she had set up her plan in such a way that 50% goes to a safe stable account and 50% to a Target 2040 fund. She was busy and pretty much ignored what she said over the years. After all, her goal was to make money investing and she could see at a glance that her portfolio balance was growing. Now she needs to take a closer look at her 401k asset allocation to see what percentage is invested in each of her two 401k investment options.
In early 2015, a closer look showed that the portfolio-asset allocation of both plans was far more risky than she had expected. The target fund represented almost 80% of their assets in their first plan and 75% in their current plan. What happened and what should she do to get back on track and still keep things simple? What happened was their target funds turned out to be one of the top 401,000 investment options in their plans for 2040, and far surpassed their safe stable accounts.
The other top 401,000 investment options were stock funds, but Torie thought they were too risky. In the target fund, most of the money was actually invested in equity funds, the rest in bond funds; and both types of funds had performed well at the beginning of 2015. Her plan was to keep making money by investing in her 401,000 by holding her target fund and a safe investment. She was also invested in stocks and some bonds to give her portfolio some balance.
What she now has to do is rebalance her 401k asset allocation so that 50% of her portfolio assets are again invested equally in each of her two selected investment options. This significantly reduces your risk and suits your level of comfort. Now, can you or Torie make money investing in 401,000 plans in 2015-2016, with an asset allocation of 401,000 allocated half to safe investment options (money market funds or stable accounts) and half to equity funds or target funds? Yes, unless the stock market falls and bonds are hit too.
How can you make money in 2015 and beyond investing in 401k plans when stocks and bonds are both hit hard? You would have to move most of your money to the safe havens available. In other words, your best 401k investment options would be the stable account that pays interest (if available) or the money market fund (which your plan should have but currently pays very little dividends). For the average investor in need of long-term growth (like you and Torie), this is an extreme measure.
Remember, your real goal is to make money investing in 401k plans so you can have a safe retirement. A moderate risk is part of the program. I take Torie as an example because her situation is typical. Your 401,000 asset allocation fits their (and likely your) risk tolerance and should result in growth over the long term. She has selected the best 401,000 investment options to help meet her retirement target in 2040 (if you plan to retire in 2030, choose target fund 2030, etc.). Half of their money is safe and the other half has growth potential.
She also has a plan to manage her 401,000 investment options. If the markets get ugly in 2015 and 2016, she will not make money investing in 401k plans, she will lose money. But she flows into her target fund every payment period to buy stocks at increasingly cheaper prices and money that flows into and accumulates in her safe investment. Every time her asset allocation of 401,000 indicates that 60% or more is in the vault, it will REBALANCES back to 50%, which means that money is taken from the vault and added to the target fund. Then when the markets turn, she is well positioned to make money by investing in 401k plans for a safe future.
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Source by James Leitz