Rebalancing 401k Accounts

Q and A with Mary Mullin, Wealth Management Advisor for Merrill Lynch Global Wealth Management, Boston, MA

The past year has impacted many of our 401(k) plans. What advice do you have for investors to get their retirement plans back on track?

For many people, their 401(k) is their largest asset. Investors should look to see how their 401(k) fits into their overall retirement strategy. This begins with deciding on an asset allocation that it is line with the client’s risk profile and making sure that the sum total of all holdings is in balance.

The most important advice I can give is to make sure your portfolio is diversified. The extreme market volatility has disrupted even the most sound retirement accounts; but, a careful review of one’s plan can help identify changes in the marketplace that may have strengthened or weakened their retirement savings and make adjustments, if necessary.

When looking over your 401(k) plan, what kinds of things should investors look for?

Becoming educated in the process of how the market works and what is working for you is the first step to taking stock in your financial future. Investors should take a good look at their 401(k) plans to identify the poor performers. After identifying the poor performers in your mix, talk your financial advisor about getting a better match for your lifestyle needs.

401(k) plans can have 15 or 20 fund choices that range from a conservative fixed income to an aggressive growth equity fund. Investors should not be intimidated by a multitude of investment vehicles, and should focus on five to seven funds. These funds should be in different asset classes which will help diversify some of the risk.

Also, certain 401(k) plans charge fees for certain transactions. Doing research to identify the correct plan for you will help you avoid significant losses in your 401(k) plans which may be a result of your plans extra fees.

How often should investors review and make changes to their 401(k) accounts?

401(k) accounts have a long term time horizon and investors should avoid the temptation to make frequent changes. I recommend that investors review and rebalancing their portfolios on a certain periodic schedule – whether it’s quarterly, every six months, or once a year – which will prevent you from making emotional decisions that may not take into account long-term financial considerations.

Mary Mullin; Merrill Lynch Global Wealth Management; mary_mullin@ml.com