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Do You Need Help Managing Your 401k Plan? Thumbnail

Do You Need Help Managing Your 401k Plan?

Do You Need Help Managing Your 401K?

Did you know that the S&P 500 Index Mutual Fund available to you through your NRECA 401k options has historically averaged a return of approximately 10 percent? Did you know over that same period of time the average cooperative employee in the 401k plan has averaged a return of only 3.9 percent? Why are you getting 4% instead of 10%?

Is Emotion Is Driving Your Decisions?

Emotion can drive the average investor to chase the latest, hottest investments after they have peaked and then sell the investment after taking the ride all the way to the bottom. Everyone has heard the phrase “buy low, sell high,” however, very few 401k investors do this. Many commit the cardinal sin of buying high and selling low without even realizing it. Most of the time that decision-making process was based on emotions.

A classic example of this was during the Great Recession of 2008. Markets fell by 49% and many people panicked. Since they could "control" the investments in their 401k they did what they could to stop the bleeding in their investment accounts. And they did precisely the wrong thing...they made decisions based on emotion. They sold low. They locked in 49% losses for the rest of their lives. We don't need to get into math here but it is extremely hard to ever come back from a 49% loss.

What's interesting is that during that same time period housing prices fell between 10% - 35% depending on where you lived, but I bet you didn't call your real estate agent and list your home for sale. Why? One reason is that there’s a barrier between wanting to sell your home and actually doing it. It takes more than logging on to a computer to sell a house. The second reason was probably because you didn't want to lose money (and possibly a home that you loved).

*401k Tip:  Investments are much like a house. You don't actually lose money until you sell the investment at a loss.

Do You Actually Know How To Manage Money In Your 401k?

Almost every single cooperative employee has access to the same 401k plan but most employees have zero training in how to actually manage money based on their age, goals, retirement plan, etc. And as for the younger crop of cooperative employees, you don't have access to the R&S pension plan so managing your 401k correctly is essential to your retirement plan.

Let's look at the Great Recession example again. Had you been properly invested in your 401k based on your age, goals, retirement plan, etc. there would've been nothing to worry about at all. In fact, once the market went down you could've bought and locked in a 49% gain! Why didn't everyone do that? My guess is they were still making emotional decisions. Guess who wasn't making emotional decisions? Professional investors and investors working with a financial advisor. Guess who made a lot of money during the Great Recession? I think you know the answer.

Here's an analogy I like to use with regard to 401k plans: Would you take a free car from your employer with the only stipulation being that you have to do all the maintenance and repairs on the car for the entire life of the car? Yes, we would all take that deal and some of us can actually do car maintenance. Many of us, however, have no clue how to even change the oil!  For the first several years that car will run fine but if we neglect repairs and maintenance, over time that car will start performing poorly. In many cases it will stop running all together.

I make this analogy to illustrate the point that, without training, a 401k can actually be a detriment to your retirement plan. You can totally derail your retirement by not managing your 401k correctly. Lou Holtz, former college football coach at Notre Dame once said,

“You don’t need the big plays to win; you just have to eliminate the dumb ones.” -Lou Holtz

The same concept can be applied to your 401k. You don't need the big investment to win. You just need to eliminate the dumb investments.

But here’s the good news. There’s help to make sure that doesn’t happen to you.

You Can Hire An Advisor To Help With Your 401k

What most cooperative employees don't realize is that you are already paying advisor fees in your 401k without getting personal guidance on how to manage it. Almost every 401k plan is managed by registered investment advisors who act as fiduciaries to the plan. Their obligation is to the 401k plan, not to you. They cannot manage or advise you on how to specifically invest your money based off of your personal goals. 

I want to be clear that this is not a bad thing. NRECA does a great job managing their 401k plan but just remember that their obligation is to the success of the plan and not your success in retirement.

Most advisors, like myself, offer an hourly consulting rate to help you with things such as 401k investing. Your plan at NRECA offers a Self Directed Brokerage Account option. An SBDA allows you to open an account with an advisor that gives you access to more investment options and gives you the ability to have an advisor professionally manage your account based on your goals.

Did you know that working with an advisor on your 401k can lead to a balance twice what you would've had going it alone? You need to read that again. Twice as much!

In the end, your 401k can make or break your retirement plan.

At 80/20 Financial Services, we specialize in retirement income and investment planning. If you are age 50 or over and need help with your 401k strategy and your retirement strategy in general, contact us. We don't sell. We help.

You Need A Plan

A goal of retiring - without a plan to get there - is simply a plan to never retire. If you're age 50 or over and still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can create a plan which will outpace inflation and possibly leave a legacy to your family. The consultation is free and without obligation. Contact us to set up a consultation.

In order to provide you with the best service possible we have to be very selective when deciding to work with potential clients. We aren't for everyone. We only work with a maximum of 50 households at a time.

We are currently accepting new clients if you meet the requirements below:

  • You are age 50 or over and have at least $750,000 between your cooperative retirement accounts and any additional retirement accounts. 

For more articles about retirement planning and investing click here.

Thanks for reading!

Brian Coleman/Retirement Income & Investment Planner

80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help Electric Cooperative Employees create their retirement income and investment plans.

Photo by Jason Briscoe on Unsplash