5 Tips to Managing a Retirement Account

Most of your students can’t even imagine retirement as they are not even sure what career path they are about to embark on, but setting up a retirement plan immediately when they begin their careers is one of the best long term decisions they can make. With the power of compound interest every dollar they invest in their 20’s could be worth 5-6x’s that amount by the time they reach retirement age. Based on experience, it will be here sooner than they think.

Barron’s published a nice article on 5 key tips to managing a retirement account. Here is a summary of each:

  1. Load up on stocks when you are young: Stocks offer the highest return potential but the most risk so when you are young it is best to have a higher concentration of stocks in your portfolio.
  2. Don’t automatically opt for target-date funds: Many companies will automatically put you in target-date funds if you don’t specify where you want your money to go. These can be right for some investors but it is important to investigate all your options.
  3. Keep an eye on expenses: Over 40 years expenses can cost you into the tens of thousands of dollars. Many index funds will have lower expenses than managed funds. It is good to monitor the expenses of your funds on a regular basis.
  4. Check if your plan offers a Roth 401(k) option: These are great if offered as you pay the tax upfront and 40+ years later when you withdraw the money you don’t pay any taxes on the interest earned over that time. Roth 401(k) accounts are especially attractive to younger workers in lower tax brackets. They’ll take home less money today, but they’ll have tax-free income in retirement, when they might be in a higher tax bracket.
  5. Consider automatic rebalancing: Checking this box when setting up your account makes things easy. When one portion of your portfolio has grown too much some of those gains are automatically shifted over to other investments that haven’t gained as much to rebalance your portfolio.

Here is a link to the complete article on Barrons.com: https://www.barrons.com/articles/6-tips-for-managing-your-401-k-like-a-pro-51617218448