By Anthony Paul
For those who have an employer-sponsored retirement plan, the beginning of the year is always a good time to look at the market and check in on your plan. I hear a lot of people say they do not consider themselves an investor; but if you put your money in a retirement account, then you are indeed an investor.
Here are some basic tips to keep in mind when it comes to your retirement plan:
· The most important thing is to understand your plan. Figure out the features and benefits. What are your investment options? What are the risks associated with each of those funds and the associated fees? You’ll also want to max out your employer matching contributions. Believe it or not, most people do not take full advantage of this.
· Be sure to start early and save more. Most people wait until the latter stages of life to plan for retirement. The earlier you start, the better you are going to be in the long run. There is no time like today. Even if you only contribute $50 or $75 a month.
· Evaluate your current asset allocation. Then review your significant other or spouse’s retirement plan afterward. Do his or her investments complement yours and align with your overall financial plan? A lot can happen in a year, so it’s important to review your assets and make sure they are properly distributed.
The investments you pick are going to be different depending on your age. If you are in your 30s and you still have three or four decades until retirement, you can be more aggressive. Do not let the short term market volatility scare you because you have a longer time horizon. If you are middle-aged, you’ll want to tone down your risk levels a bit by increasing your fixed income and cash allocation. For those nearing retirement, you’ll really want to reduce risk and look at more capital preservation.
A lot of people ask me how often they should review their retirement plan. I always recommend doing an initial check at the beginning of each year and then several times throughout. If you are nervous about the markets and any potential short term news, wait awhile until the next time you review. You do not want to affect your portfolio with short term news and volatility.
One last piece of advice, keep dollar cost averaging in mind. This means that you are putting money in every month; sometimes at high points, sometimes at average points, sometimes at low points. It does not guarantee you better returns but it will reduce that risk and volatility because you are buying at different prices through the history.
It’s important to look at your financial plan holistically. Considering reaching out to a financial expert who can help you figure out your goals, review your risk tolerance and create a plan right for you.
Anthony Paul is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Denver. He can be reached at 303-925-9683 or Anthony.D.Paul@MS.com.