How to Advise Your Employees (and Yourself) on Retirement Asset Allocation

It’s easy for anyone to “forget” about retirement, especially when you’re young. This is no different for you or your employees. Even if they are maxing out their 401(k)s and IRAs besides, they will want to make sure that their funds are properly allocated for maximum growth. This assumes of course that these savings are invested in something like mutual funds, but of course there are options. Below, I’ll go over the basics of making the most of your 401(k) and other investment savings through proper retirement allocation.

  1. One of the best ways to make the most of these savings opportunities is to max them both out. The government has created these savings avenues to make sure that the average person has the chance to accumulate wealth during their working years. Of course, there are other ways, but employer-assisted 401(k)s and IRAs are two of the best. But if your employees aren’t maxing out their pay-ins every year, they’re leaving money on the table.

  2. Invest is low-cost mutual funds, or some close equivalent. Mutual funds provide one of the surest foundations for growth in a 401(k) or IRA. Because your money isn’t tethered to any one stock, it grows (or declines) with the trajectory of the overall market. Because the market has a tendency to grow, despite momentary fluctuations in the opposite direction, your money will almost surely grow over the decades.

  3. Because there is no risk free investment, and because you have less time to recoup losses as you age, you’ll want to make sure your funds are properly allocated to minimize risk as you age. This is where stock and bond allocations come in.

  4. Bonds are one of the safest ways to invest your money. But they don’t have very much growth potential. However, this is by design. Bonds are created to grow just above the inflation rate, so your money will never lose value over time. It will only gain a little bit of value, but you’ll keep your spending power, which is the important thing. Bonds play an important role as an investor ages. As you get older, you’ll want to risk your hard-earned savings and investments much less. By investing more and more in bonds as you age, you’ll keep the value of these dollars without the risk of losing it.

  5. Stocks are something you should allocate more of when you are young. It isn’t common for people in their twenties to have a 90/10 stock/bond allocation distribution, or more! This is considered aggressive. Basically, stocks have a lot of growth potential, but they can also lose value quickly, as we learned in 2008. You and your employees will want to allocate stocks highly early on, then ease back into bonds as you get older. Each investor is different, however, and you should allocate your funds according to your comfort level.

There are different approaches to investing, but for simple funds like mutual funds, these are good rules of thumb. Since you are investing in your employees by matching their 401(k) earnings, do them the benefit of helping them best allocate their funds. 

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