5 Tips for Managing Your 401(k)

If you're contributing to a 401(k), congratulations. You're putting money aside all year long, and you're getting valuable tax benefits like investment earnings that grow tax-deferred. Enrolling in and contributing to your 401(k) is just the start. There is still work to be done to manage your contributions.

Managing your 401(k) takes time and thought. These tips can help you stay in control of your 401(k) investments.

1. Know your plan's rules and procedures, and how much your plan and its investments are costing you. Take time to read your summary plan description (SPD), a document that lays out the rules, fees and procedures of your 401(k). Your employer should provide a copy of your individual benefit statement at least once every 12 months, though you may have to request it. You might want to review the document with your financial adviser or ask your plan administrator or human resources department about any details you would like clarified or explained in more detail.

2. Get a handle on fees. All 401(k) plans carry asset-based fees and expenses that have a direct impact on your investment return and your long-term financial security. The difficulty is that it can be hard to calculate what fees are costing you because you don't pay them directly by writing a check. Rather, they are subtracted before your return is reported. Your account statement documents the amount of money you actually paid for various services and investments expenses, so be sure to check it out. In addition, most fees are explained in your SPD. You can also ask your human resources or personnel department for an explanation. You can access more information about 401(k) fees and charges from the U.S. Department of Labor's online publication, A Look at 401(k) Plan Fees for Employees.

3. Monitor performance. One helpful means of evaluating investment performance uses benchmarks. Benchmarks tend to be an index or average that tracks representative stocks or bonds, or some combination of investments. The index serves as an indicator of the overall direction of the market as a whole, or of particular market segments. One of the most important things you can do when tracking your investments is to set the right expectations. A percentage return that could be considered strong in one market environment might be considered weak in another. There's no single, unchanging standard—for instance, that all stocks should return a specific percentage each year. Instead, performance standards are moving targets. That's why it's important to judge an investment in the context of your portfolio strategy as well as against the appropriate standard or benchmark.

4. Read account statements. Another resource for managing your 401(k) is your account statements. They contain details such as your account holdings, the change in value of your account from one period to the next, and other important account information. Your employer must give you an account statement at least once every quarter. Many plan providers, however, send you statements on a monthly basis. You may also be able to access account information online.

5. Don't forget to rebalance. There's a strong likelihood that over time your portfolio will get out of alignment. The investment allocation you started with (say 60 percent stocks and 40 percent bonds) will change—perhaps dramatically—and you will want to rebalance your asset mix. Some investments such as lifecycle funds automatically rebalance as you age. Although there's no official timeline that determines when you should rebalance your portfolio, you may want to consider whether you need to rebalance once a year as part of an annual review of your 401(k) plan.

You're not alone when it comes to managing your 401(k). Your employer and 401(k) plan administrator may offer resources to help you with your financial planning, including asset management.

You also may want to consult an investment professional. Ask any potential broker or adviser about his or her background and how they earned their credentials. Also ask for an explanation of their fees. Most importantly, check their backgrounds. FINRA BrokerCheck tracks the credentials of licensed brokers and investment adviser representatives.

For more information about managing your 401(k), visit the Investors section of FINRA.org.

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