What is the best 401k plan? The one that takes the high road, or the low road to investing?
You take the high-road and I'll take the low road, yet I'll get to retirement before ye. This phrase unfortunately does not hint to the best provider of 401k growth . The idea of taking the low road would seem to be the quickest route to retirement. The low road would consist of taking on higher risk to expect higher growth. On the other hand taking the high road may seem to take longer, expecting less risk with less growth. However, there is no one way to do it. The best way to choose your risk tolerance when picking an investment portfolio is to base it off your age, goals, financial responsibilities, and financial resources.
First off, how old are you? Generally, younger generations with less money should take on more risk, simply because they have less to lose. However, if you believe you have more money than an average person at your age, you may want to steer towards a more balanced portfolio. Go for a high growth portfolio at young age and slowly move to a more conservative portfolio as you get older. As I will explain, there are exceptions to this.
Next you have to think about the goals you have and how you can you reach them without putting yourself in danger. An important question to ask is, "How will I react when the markets are volatile?" Standard 401k models use asset allocation, to spread your investments out which lowers risk for you. However, higher risk portfolios are exactly what they sound like. What goals do you have that can be potentially hurt by risky investments?
Last you must think about your financial resources and responsibilities. Can you afford to take on more risk in one investment option because you have low risk in another? Do you have another child on the way? What if you just can't afford to lose money due to the many different financial obligations you have now or will have in the future? Don't take on risk if you cannot afford it.
My last piece of advice is to make sure you have an investment advisor who re-balances your portfolio for you so you do not have to get involved. If you are highly reactive when the markets drop, it's time to become hands off. Selling out of a position when things get bad will only make you miss the impending increase that comes directly after. Investment advisors realize this, but make sure your choosing the right one.
For more on how to choose a risk portfolio or how to find a company that does this, click here.
Information posted on this blog should not be taken as advice and is for information purposes only. Before this can be considered actionable advice you must seek a professional advisors opinion. All posts with links, quotes, or information involving a third party are not considered endorsements.
Next you have to think about the goals you have and how you can you reach them without putting yourself in danger. An important question to ask is, "How will I react when the markets are volatile?" Standard 401k models use asset allocation, to spread your investments out which lowers risk for you. However, higher risk portfolios are exactly what they sound like. What goals do you have that can be potentially hurt by risky investments?
Last you must think about your financial resources and responsibilities. Can you afford to take on more risk in one investment option because you have low risk in another? Do you have another child on the way? What if you just can't afford to lose money due to the many different financial obligations you have now or will have in the future? Don't take on risk if you cannot afford it.
My last piece of advice is to make sure you have an investment advisor who re-balances your portfolio for you so you do not have to get involved. If you are highly reactive when the markets drop, it's time to become hands off. Selling out of a position when things get bad will only make you miss the impending increase that comes directly after. Investment advisors realize this, but make sure your choosing the right one.
For more on how to choose a risk portfolio or how to find a company that does this, click here.
Information posted on this blog should not be taken as advice and is for information purposes only. Before this can be considered actionable advice you must seek a professional advisors opinion. All posts with links, quotes, or information involving a third party are not considered endorsements.
