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Working harder doesn’t
necessarily make you richer

This Monday is Labor Day -- and if you're like many people, you certainly feel that your household is laboring pretty darn hard. And you'd be right. In fact, from 1975 through 2002, the average hours worked by all family members rose by 11 percent, according to the Economic Policy Institute. But all that work may not necessarily translate into the attainment of your financial goals -- unless your money is working as hard as you are.

How can you make sure that this happens? For starters, you need to define just how hard your money needs to work -- in other words, what sort of performance you'll require from your investments. Not everyone needs the same type of return from his or her portfolio. For example, if you plan on working past normal retirement age, and then stay fairly close to home, you might not need as much income from your investments as your neighbor, who wants to retire early and then travel the world. To get a reasonably close estimate of the level of resources you'll need to draw on during your retirement years, you may want to work with a financial professional.

Once you know how much you'll need, you can assess if you're on track toward reaching this figure. After factoring in what you can expect from Social Security -- an amount that will only make up a relatively small percentage of your retirement income -- consider your employer-sponsored retirement plan.

If you work for a company that offers a traditional "defined benefit" plan -- one that pays you a pension based on your age and length of employment -- there's not much you can do to get more "bang for your buck," apart from working more years. But if your employer offers a "defined contribution" plan, such as a 401(k), you can take action to ensure that your investment dollars are working hard for you.

Start by evaluating your 401(k) portfolio. Are you "overweighted" in conservative investments, such as bonds, cash alternatives or annuity contracts? These vehicles, while not without value, are "lazy" in the sense that they won't give you any significant appreciation. To provide yourself with substantial growth opportunities, you may need to put a relatively large percentage of your 401(k) plan into equities. Then, when you near retirement, you might want to lock in any gains you have achieved, and reduce your portfolio's volatility, by shifting some -- but certainly not all -- of your 401(k) equity dollars into the bond and stable value accounts.

And the same course of action applies to your individual investments. Even if you are, by nature, a conservative investor, you will need at least some exposure to stocks to achieve the growth you need for retirement and other long-term goals. If your portfolio is laden with bonds and CDs, you might lower your investment risk -- the possibility of losing some principal -- but you'll assume more purchasing power risk, because fixed-rate investments may barely keep you ahead of inflation.

In short, you need to construct a diversified portfolio that reflects your risk tolerance, long-term goals and time horizon -- but you have to make sure it contains plenty of investments that are working hard for you. Without these investments, you may be the one who has to keep working hard -- for more years than you'd like.