How We Allocate 401(k) Retirement Plans

Knowing what we know about stock markets, how can we achieve the highest possible return with the lowest amount of risk? This is the primary question driving the allocations that follow. It’s a simple question that’s packed with layers of complexity.

Here’s a brief review of how we broke down the complexity to make it simple for you to execute.

• Calculated risk
  • Stocks are riskier than bonds. History tells us you receive a higher return for taking this risk.
  • Certain stocks outperform other stocks – small cap and value stocks, for example.
• Controlled risk
  • Do not put all your eggs in one basket.
  • Use high quality bonds to offset stock market risk.
  • Be patient. The best way to capture stock market returns is to stay invested and keep investing with your periodic 401(k) contributions.

Of course, the biggest factor in all of this is YOU. While we know how to develop retirement plan portfolios, we do not know your specific goals, objectives and values. Specifically, I can’t tell you whether you should be in the 100% stock allocation, the 60% stock 40% bond, or some iteration thereof. Can I assume that a 32-year-old who recently became a physician should take more risk in light of a longer investment horizon? Sure. But that changes for a physician in his forties, and for one who wants to retire early.

If you have specific questions about which mix to choose, shoot me an email at lowell@merriman.com.

Likewise, if your 401(k) is not listed on our site, send me your available investment options and I’d be happy to provide my thoughts.