Merriman, Inc

If you are like most of us, you likely visit your doctor’s office at least a couple of times a year. But when was the last time you had a check-up for your 401(k)?

It would not surprise me if you said, “not in quite a while”. But getting a financial check-up for your 401(k) account is extremely important, especially given the heightened economic issues and market turbulence over these last few years.

One of the many benefits of being a Merriman client is that we have the tools to help you align your 401(k) investments once a year. All you have to do is provide us with the mutual fund choices within your 401(k).

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I use your investment strategy for my Roth IRA and Rollover IRA.  My current employer uses Prudential for my company’s 457 plan.  Looking at the options, I cannot seem to use your allocation strategy due to a lack of choices.  Do you have any suggestions?

As the editor of 401khelp.com I am constantly reviewing 401(k) plans.  A recurring theme in most plans is a limited number of investment options.  This restricts your ability to properly allocate and diversify your account.

If you find yourself in this situation the allocation tactic described below is a simple and practical way to get your portfolio on track.

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An article in the Wall Street Journal (Debt Hobbles Older Americans, 9/7/11) paints a sobering picture of the impact that rising debt levels have on people’s retirement plans.

Thirty-nine percent of households headed by people aged 60 through 64 had primary mortgages in 2010, up from 22% in 1994. The median value of mortgage and home loan debt, adjusted for inflation, for homeowners aged 60 to 62 also increased, from about $40,000 in 1994 to $80,000 in 2008.

Housing price declines have made it more difficult to pay off these mortgages, forcing people to work longer before retiring.

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Dollar Cost Averaging (DCA) is a method for reducing your costs as you make regular investments over a long period. By investing the same number of dollars regardless of market prices, you automatically reduce your average price per share.

Consider this simple example: You decide to invest $100 on the same day every month in a fund that tracks the Standard & Poor’s 500 Index. When the index price is relatively low, your $100 will buy a few more shares; when the index price is relatively high, your $100 will buy fewer shares.

Over time, DCA forces you to automatically buy more shares when prices are low and fewer shares when prices are high. You’ll never have to decide whether you’re at a high point in the market or a low point. The math will do that for you. And your average cost per share will be lower than the average of all the prices at which you bought.

If you have money regularly taken from your pay to fund a 401(k) or similar plan, you’re already using DCA. This technique does not guarantee that you’ll ever make a profit on your investments. But it will give you a price break, so to speak.

Just as important, DCA gives you a plan. Having a plan leads to a greater success rate in any endeavor. And in this case, the plan is simple and easy: Determine how much you’ll invest, how often you’ll invest it, and what you’ll buy with your investments. Then set it up and let it work for you.

Are you a participant in a 401(k) or similar retirement plan? If so, do you know what that plan is costing you? Ron Lieber of the New York Times thinks you don’t, and I think he is right. In a recent article, he says there’s really no way you could know what your plan is costing you – but the total might add up to thousands of dollars in hidden fees over the years while you work and (if you leave your money in the plan) after you retire.

To understand the issue, it helps to know that employee retirement plans typically have four players. The first is you, the employee. The second is your employer, who offers to withhold money from your pay and (sometimes) to match part or all of what you contribute. The third is a corporate administrator hired by your employer to operate the plan and choose investment options. The fourth player consists of the mutual funds, brokerages and insurance companies that provide those options. (more…)

For over 28 years I have been chastising 401(k) plans for not offering some of the best funds in the industry. The investment offerings  that have been most obviously missing  from plans are index funds. What’s not to like about low costs, broad diversification and low turnover? Sometimes trustees will throw employees a bone by offering an S&P 500 index fund, but the long list of index funds we have been recommending for 15 years are rarely included.

Ron Lieber writes the Your Money column each Saturday in the New York Times.  He recently wrote a terrific article entitled, “Why 401(k)’s Should Offer Index Funds.” If you have a trustee who is dragging his or her feet in adding index funds, I suggest you put a copy of this article on their desk with a little note, “Wouldn’t you like to quit paying the extra fees and keep those profits in your account? The rest of us would. Signed, A Prudent Investor”

Podcast: Play in new window | Download

Podcast: Play in new window | Download

Podcast: Play in new window | Download