Proactive Retirement Planning

In our December 2009/January 2010 “Money Resolutions” article, we uncovered the number one financial resolution of my friends for 2010: looking closely at performance of their retirement accounts and taking a head-out-of-the-sand proactive role in managing them. How, though? Many are ill-equipped to deal with investment choices because there is an overwhelming set of options (and limitless information in various media, some valid, some purely entertaining).

So I enlisted three Napervillians who grapple with these questions daily: Joe Weidenbach,Managing Director, J.P. Morgan Private Wealth Management in Naperville; Steve Visser, partner and Naperville Manager, OnPath Financial, LLC; and Mark Brown, President, CFP, M. Brown & Associates (all securities for Visser and Brown’s firms offered through LPL Financial – Member FINRA/SIPC). Their advice was pretty consistent.

Open the envelope.  When your statement arrives, don’t ignore it.  Brown and Visser advise first checking to ensure that your contributions (and if applicable, employer matches) are showing up.

Weidenbach says the single-most important thing to heed, after assuring that contributed money is reflected, is asset allocation.  “Take a look at the past year, where many investors opted to sell out of various equity positions, and as markets rebounded later in the year found it challenging to regain proper allocations to potentially participate in the rally.  Asset allocation should not be a knee-jerk reaction, but rather something that should be reviewed annually, with adjustments as needed.”

Rebalancing. “If the market has moved significantly one way or the other, you may need to rebalance the account back to your original mix,” says Visser.

How?  Brown offers the example of an investor whose original investment is 60% stocks and 40% bonds. The market has been advancing for nine months, and you now find yourself 80% in stocks. Consider rebalancing to reflect the 60% of stocks by selling 20% of those stock investments that are underperforming.  It might be the opposite if the market was falling – sell some of the bond investments, and reposition to your stock investments.  “This is where it might be helpful to have a good adviser,” he says, “because you could get investment reports, discuss market conditions, the economy and strategies.”  Some portfolios rebalance automatically to reflect the desired model, but if not, you may be able to call your company and request that the portfolio be rebalanced or do it online yourself.

Visser agrees you should consider making changes if one of your investments is underperforming another in the same asset class – i.e., if your large-cap investment is underperfoming a similar large-cap investment over a period of time, you can consider swapping the two.  “However,” he cautions, “be careful not to compare or switch investments that are in different asset classes; you must compare apples to apples.”

“Making these decisions on your own can be tricky, but a good financial adviser can make the process more palatable,” suggests Weidenbach.  His four rules of thumb include considering new solutions within the overall plan that may be better for your particular situation, recognizing if there’s been a change in fund management, assessing if your overall asset allocation has changed, and knowing how close you are to needing access to the funds.

What not to do.  You can check with each of these pros for a litany of no-no’s, as space doesn’t accommodate all.  But here are some I found especially helpful:

Weidenbach:  1) “Don’t think you can ‘time’ the markets and make overwhelmingly frequent changes to your asset allocation.” 2) “When changing employers, don’t forfeit the opportunity to potentially roll over a pre-existing 401(k) to an IRA, which may offer a broader set of investment opportunities.”

Visser:  “Guard against not saving enough.  The goal is to save a minimum of 10% of gross income.  If impossible, try to increase your 401(k) savings rate by 1-2% each year, and work your way up.”

Brown:  “Don’t take advice from your friend. Just because he or she cleaned up last year doesn’t mean it will happen again.  Think for yourself.”