Cents and Sensibility
Cents and Sensibility
Learn how to read
401(k) statementIf you have a 401(k) plan where you work, keep in mind that it's largely a "self-managed" plan -- so you're the one that must keep track of what's going on. First, you need to decide how much to contribute to your plan. Next, you're in charge of picking your own investments from those available. And finally, you'll need to periodically review your 401(k) holdings and make adjustments as needed, in response to changes in your life or changes to the investments themselves.
Fortunately, you can get some help through an extremely useful tool -- your 401(k) statement. It's full of helpful information.
Here are things to look for:
>> Account summaries: Here's where you'll find the beginning and ending balance of your individual accounts over the statement cycle. This section gives you a "snapshot" of how your investments performed over the past statement cycle.
>> Investment summary: In this section, you'll find descriptions of how your individual holdings have done over time. Your statement may include annualized total returns over various time periods, such as one, three, five and 10 years. This long-term perspective can be valuable to you, especially if you're concerned about a drop in your balance from last quarter's -- or last month's -- statement. While this past performance does not guarantee or predict future results, it can still give you an idea of how your accounts have done in various economic environments.
>> Asset allocation: Ultimately, your 401(k)'s ability to help you meet your retirement goals will depend on your asset allocation -- the mix of investments you've chosen. Your statement should have some type of graphic representation showing you how your money is spread among the various options. Pay close attention to this picture, because it can change without you really being aware of it. For example, if one of your stock-based accounts has grown substantially over the years, your overall 401(k) portfolio may now be more heavily weighted toward growth stocks than you had originally intended. If that happens, you may need to rebalance.
>> Loan information -- If you've taken out a loan from your 401(k), you'll find all the key data here.
By paying close attention to what's on your statements, you'll find it easier to successfully manage your 401(k) plan. So, the next time you get a statement, take a close look -- and, if you need to, take action on what you see.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com