Making sure your company sponsored retirement plan investments are appropriately allocated and working in conjunction with other assets in other accounts is critical to achieving your financial planning goals.
All too often assets in retirement plans with one’s employer are left unattended. I have been advising people on asset allocation (percentages in equities, fixed income, alternatives and cash) and investment selection for more than a decade. One area I see that often is not paid enough attention to (or at all) is the mix of investments owned in one’s company sponsored retirement plan such as a 401k, 403b and 457 plans.
Many investment advisors are also not doing enough to ensure that these assets are working correctly with regard to the entire financial picture and conflicts of interest often exist.
Recently I conducted a free portfolio review for a new client. In our initial conversation I asked to see the statements from his investment accounts with his current advisor and any accounts he had elsewhere such as his company sponsored retirement plan and life insurance policies. In our first face to face meeting he brought along his brokerage statements, IRA statement, 529 plan statement, life insurance statement and annuity statement.
When I asked about his company 401k he mentioned he didn’t bring it along because he didn’t think it was important to bring along. I asked why he thought that way and he said:
“My current advisor has never asked about it and does not provide advice on it.”
My next question was why he hasn’t asked about it or provided advice on it? He said:
“I don’t know. He never asked and I never mentioned it because it is money that he cannot manage and get paid on so I thought it was not important for this review either.”
We then discussed his risk tolerance preference, time horizon, financial and retirement goals and set a meeting for a future date to discuss my findings upon completion of my review. I also asked if he could provide me with his 401k statements as soon as possible.
This particular client happened to be in his early 40’s with a time horizon of 25 years or more to retirement and a fairly aggressive tolerance for risk. He was able to provide me with a copy of his 401k statement, plan investment selections and program specifics. In reviewing that statement I found that 48% of his holdings where in one conservative allocation mutual fund that predominantly held bonds. This of course appeared to be in conflict with his profile: fairly young investor, with a long time horizon to retirement and a need to accumulate as much capital as possible to support his retirement income needs. It was clear a change to align his 401k investments was appropriate.
In our meeting to review my findings I had asked how the investments where selected in his 401k. He answered:
“I was in my early 30’s and new I had to start investing so I chose two investments to start and never really paid attention to it since.”
His 401k represents about 25% of his total investments and an even greater portion of his retirement asset base. Ultimately we made some changes to his asset allocation percentages to bring them in line with his investor profile and we made new investment selections in his accounts in order to align them with his goals. We made some significant changes to the investments in his 401k and plan on reviewing them on a consistent basis going forward.
Making sure that assets held in company sponsored retirement plans are not abandoned is critical to successfully achieving your retirement planning goals.
At Prominence Capital we strive to make sure that all of our client’s assets, including those assets not under our direct management are working in the appropriate manner to achieve your goals. Often this may not happen right away but work should be done to ensure these assets are not forgotten.
Contact us today at 310-433-5378 or visit us at www.prominencecapital.com for a Free Portfolio Review to see if all of your investments are aligned with your goals.