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Let’s look at these often used terms in the 401k world and see if it makes sense to rebalance a 401k, 403b or other type of retirement account on a regular basis.

It doesn’t take too long to see that many things in life have been reduced to clichés or often repeated “truisms”. A common theme we often hear in many areas of life is ‘don’t put all your eggs in one basket’. This is called diversification when investing and it is a solid Step One that most of us have done to some degree with our retirement savings.

We are going to make a very big deal of stating the obvious: diversify, since it tends to be a safer path for long term investing. But we often have to fight our own desire for a safe investment with our desire for higher returns. The danger in chasing higher returns is that typically the highest returns often carry the most risk. The challenge we face when investing is finding the proper balance between risk and return in pursuing our goals for retirement.

When each of us started our 401k or 403b plans, we were given a set of investment options from which to choose (diversify) where we wanted our savings dollars to go. In addition, we also received information on each option’s past performance and possibly its risk measurements. Beyond these numbers, what we chose or how we determined our investment options (parts) was left for each of us to figure out on our own.

With a little common sense and effort (reading, looking at numbers provided, etc.) most people spread their 401k, 403b or other retirement savings into several options (remember the eggs and the basket). This Step Two is called Asset Allocation. Asset Allocation is another way of saying how you split up your investment dollars across the options you have chosen.

This second step, asset allocation, is where many of us have ceased managing our retirement savings because of either neglect or uncertainty. When we initially decided our asset allocation amounts (how much we put into each option), it was usually a personal feeling or a guess for all practical purposes. Since then most of us have done little with our investments besides opening statements and wishing we had more money.

Regardless of why we haven’t been consistent in reviewing the asset allocations of our retirement savings, we have continued to make decisions about our accounts (and our futures) because DOING NOTHING IS STILL DOING SOMETHING!

So why rebalance and not just ‘let it ride’?

Rebalancing asset allocations has its reasoning in the ongoing reality that some investments do better than others, some investments perform far worse than expected and we often have little idea which will be which until after it has occurred! So common sense suggests we check or rebalance our 401k, 403b or other type of retirement account on a regular basis.

Rebalancing is Step Three…here we check our allocations and consider rate of return and risk performance on a regular basis. What are we checking for?
• Is one part (or parts) doing so poorly that it is dragging down the whole portfolio?
• Has one part done so well as to become almost the whole portfolio?
(Why is that bad…do you really want all of your eggs in one basket?)
• Is there too much or too little risk in the portfolio?
• Is there true diversity across individual investments? is a tool to help examine a portfolio and gain confidence in making asset allocation decisions. Each 401k-Checkup is a customized, easy to read graph detailing the rate of return and risk measurements for both the individual investment parts AND 1,000 other possible allocations of a 401k or 403b account. This simple to understand tool will visually show how each individual investment performed and 1,000 different allocation possibilities for the whole portfolio.

This wide range of possible outcomes allows a quick analysis by highlighting and identifying three distinct allocations:
1) Current Allocation
2) Maximum APR Allocation
3) Risk-Return Balanced Allocation

Using this customized report will help you quickly and easily decide:
A) if the current asset allocation is accomplishing your goals and no changes are needed at the present time.
B) if you want to consider making adjustments to your existing allocations.
C) if you want to consider adding or replacing individual investments in your portfolio.

Whether changes are made or not, you will gain confidence and comfort by proactively analyzing your 401k or 403b account. helps in making informed decisions about your retirement account. Stating the obvious in closing, it’s your money so you probably want to check it now and again!

• Step One = Diversify your investments
• Step Two = Asset Allocation review at least once a year
• Step Three = Rebalance if/when needed

401k-Checkup Team
It’s a tool, not a rule. ™ is a wholly owned site of PSDS Portfolio Design, Inc. ™ * 1401 Dove Street, Suite 420 * Newport Beach, CA 92660 * 949-975-0958
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