How to Manage a 401k

By | June 27, 2016

canstockphoto31025682401k loans can be very rewarding, but also incredibly intimidating for those who haven’t yet conducted a thorough amount of research into how to properly manage them. Fortunately, learning how to manage your 401k is simply a matter of having the patience to sit down and read the numbers. In time, even the most inexperienced 401k manager can learn that mastering 401k management doesn’t require a genius-level intellect; it is simply a matter of diligence, patience, and the willingness to learn. Some of the most important core factors in successful 401k management are as follows:

  • Choosing between professional and online management
  • Keeping tabs on your statements
  • Exercising discretion
  • Accounting for fees and expenses

Choosing between professional and online management

One of the first questions that someone who wants to learn how to manage a 401k may ask is whether or not they should consult a professional or invest in automated online services. In a report published by Financial Engines Incorporated, it was demonstrated that professionally managed assets, on average, saw 3.32% more in returns than accounts that had no professional management whatsoever. Generally speaking, if you don’t have extensive investing experience, then you’re always going to be better off investing in the professional expertise of a reputable manager. It is common that some of the over-the-counter management services may be offered for as little as 0.1%, while professional managers may charge as much as 4 or 5%; be advised, you will usually get exactly what you pay for.

Keeping tabs on your statements

In order to make sure that you stay on top of all of your investments, you are going to want to make a strong effort to become very adept at reading your account statements on a regular basis. Your statements will contain all kinds of information that is integral to understanding the exact status of your account. Your account statement will let you know all of the different changes in value of your account that can occur with every period.

Naturally, you will want to be aware of just how frequently you receive your account reports. Your account report frequency will depend directly on the value of your accounts, or perhaps even the frequency with which your account value is determined by different record keepers. The valuation of your accounts will also be contingent upon your portfolio reallocation frequency. In the event that you decide that your assets need to be reallocated, then take note of whether or not your plan is valued on a quarterly basis. If your plan is valued quarterly and you decide to reallocate your assets, then you just might be better off waiting until the end of the period.

Exercising Discretion 

It can be extremely tempting to exclusively invest in what you believe are only the winning assets, however, you must not make this mistake. The market is always rising, falling, and fluctuating in more ways than even the most seasoned professionals can keep 100% track of. If you want to be sure that you can optimize the growth of your savings, then the best course of action is to simply remain diligent in making constant contributions to your plan.

Accounting for fees and expenses

You will always want to be completely aware of the direct impact that various expenses and fees have on the potential ROI of your 401(k) plan. In addition to having an effect on the investment return, all of the asset-based fees will also have an effect on your 401k plan’s general level of security overall. One of the greatest challenges facing anybody who has a 401k plan is the difficulty of pinpointing exactly what expenses are incurred by the subtle, unpaid fees that are easy to miss.

Never forget that these small fees are always deducted prior to your final return. If you ever need clarification of just how much money that you have paid for investments and services of any kind, be sure to consult your account statement documents. In addition to taking notes of your statements, you should also make a point to look into your summary plan document (SPD) and human resources/personnel department as well. The United States Department of Labor can serve as a comprehensive resource for finding out as much information as you need to know about all 401k charges.