You probably get a regular health checkup, you get your teeth cleaned twice a year, you get a second opinion for major health issues. You may even get a second opinion when you buy a boat or a vacation home!
The second reason is the potential to obtain better guidance in adjusting the asset allocation to a more appropriate level that takes into account your own individual goals and risk tolerance. Although 401(k) plans may offer appropriate investments and some educational information about those options, 401k plan sponsors do not usually make available truly personalized advice to plan participants.
Regardless, there are mistakes that you need to avoid in the process of rolling over your 401(k). To avoid those mistakes, it is important to be able to recognize them. (Click here to receive the Top Mistakes in 401(k) Rollovers fact sheet.)
It should be noted that one reason to keep your retirement assets in your 401(k) plan is that costs are often, but not always, lower in 401(k)s. However, without an appropriate investment plan, lower costs may not bear fruit.
In general it is a good idea to get advice from a Financial Planner who is a fiduciary. You may think that your financial advisor is obligated to do what is best for you, the client. However, not all are not obligated to act in your best interest (whereas a fiduciary would be), and may advise higher fee products, or proprietary products sold by the firm he or she represents or products that do the job.
In April 2016 the Department of Labor rolled out a new regulation that is to take effect in 2017 mandating that all investment professionals working with retirement plan participants and IRA owners shall adhere to a fiduciary standard for all retirement accounts for which they provide investment advice. For purposes of the DOL rule, retirement accounts include 401(k)s, IRAs, and Roth IRAs among others. The Department of Labor estimates that the investing public would save $4 billion a year with the new fiduciary rule. As you might expect, the fiduciary rule is opposed by affected Wall Street interests that are seeking to water it down or eliminate it entirely.
The Trump administration issued an executive order on February 3, 2017 to review the rule. While the Trump administration would like to roll it back, the industry is moving ahead with implementation, potentially regardless of possible regulatory about faces. Hence the future of the rule is unclear at this time.
you always have the option to roll over to an IRA that you can manage
Of course, whether or not this regulation takes effect in 2017, you can still benefit from working with a fiduciary advisor. If the advisor you are working with is not working to a fiduciary standard – i.e., with your best interests in mind, seek out someone who is. It’s important: after all you are dealing with your money and your future standard of living in retirement.
In the current regulatory environment, fee-only Financial Planners at Registered Investment Advisor firms usually serve as fiduciaries, and are required to always act in your best interests – they must avoid conflicts of interest, and cannot steer plans and IRA owners to investments based on their own, rather than their clients’ financial interests. In contrast, brokers, insurance agents and certain other investment professionals only have a responsibility to recommend securities that are “suitable.”
Making sure that the investment professional you are working with is acting in your best interest may help you invest your retirement funds more appropriately. Note that the Securities and Exchange Commission (SEC) has not promulgated similar regulations for non-retirement investment accounts so if you are not dealing with a fiduciary advisor, you run the same risk of potentially higher costs or merely suitable investments. In fact if you have an IRA and a brokerage account with your financial advisor, he or she may end up being a fiduciary on one account and not a fiduciary on the other account. How is that for confusing?
If instead in the same period you had been invested 50% in the S&P 500 and 50% in the Barclays US Aggregate Bond Index, you would have lost approximately 23.84%. You would have then needed a return of only 31.35% for your investment to return to its pre-recession level.
Obviously, this example is hypothetical. There are many other factors that weigh into portfolio design. Although real life portfolios will often contain many more components, this simple example illustrates the benefits of diversification, and the importance of managing risk in a portfolio.
It is up to you and your financial planner to judge the risk that you can afford, and up to your financial planner to help you implement a portfolio that reflects that risk.
Percentage Gains Needed to Offset Losses
The bar chart to the left will allow you to estimate the amount of gain required to offset any loss that you might have experienced.
What to do? After a financial planner has assessed your risk capacity, he/she will be able to recommend a fully diversified portfolio that includes all relevant asset classes to match your financial objectives.
Note: The above hypothetical example is based on historical performance of the S&P 500 and Barclays US Aggregate Bond Index using Morningstar data. You cannot invest in indices. Trading and management fees are not computed in the example. This is not investment advice, which can only be given individually based on your risk tolerance and circumstances.
On September 8, 2015 Beverly Quick of CNBC “Squawk Alley” spoke with Warren Buffett about investing:
According to Buffett: “ I’m no good on what’s going on in the markets . I have no idea what will happen tomorrow or next week and sometimes they get very volatile like this and other times they put you to sleep, but the important thing is where they’re going to be in five or ten years. And I’m confident they’ll be considerably higher in ten years, and I really have no idea where they”ll be in ten days or ten months.”
an investment plan utilizing a systematic approach will eventually pay off
Please note: The above blog post is general in nature and not intended to address any specific person’s needs or circumstances. Investment advice is specific to each individual and is provided only after detailed discussion and understanding of personal circumstances. The above article is general in nature and not intended to address any specific person’s needs or circumstances.
Check out some of our other investment blog posts:
Long Term Care is not something that we rush to buy. Before you delay it too long, you may want to consider how the denial rate goes up with age. If you wait too long you may not be able to get it. Review the information at both the LongTermCare.gov and the AALTCI web site for a broader understanding of these topics.
Spend out of your own funds. You need to make sure that there will be enough. Consult a financial planner to make sure that this is the case
Medicaid planning. With this method you would be putting your asset in a trust that would shelter them from the government. Medicaid would end up paying for long term are. This is a complicated procedure that requires careful financial and legal planning.
Long Term Care insurance. With this method, a senior can shift the responsibility for long term care expenses to a third party.
A combination of the above. For instance many people end up using a combination of spending their own funds and long term care insurance.
Most Long Term Care Insurance Policies buy you a “Pool of Money” that can be used for home care, assisted living, nursing home and adult day care. Importantly, most seniors prefer to stay home as long as possible. Most long term care policies will pay for home care. For example, 40% of people buying a Long Term Care Policy bought a policy with 3-year of benefits (with an inflation rider) valued at $165,000. Costs and policy benefits vary greatly from company to company and policy to policy so close attention to detail is required as is a financial soundness assessment of the insurance company under consideration.
Wealth Management often ties in different disciplines. Planning for long term care needs to ensure that all the other parts of the retirement puzzle (investments, cash flow planning, other insurance, tax planning) are tied together.