5 Ways to pick your 401(k) or 403(b) differently than your basketball bracket

TOURNAMENT TIME

No doubt your office sports guru or the take-charge sports fan in your life has distributed brackets or the URL for you to make your picks in the upcoming NCAA basketball tournament.

 
 

But if you’re like most of us, you don’t know a whole lot about college basketball, you haven’t watched that many games throughout the season, and you probably won’t get around to doing the picks until just before the deadline.

When it’s time to pick, you’ll implement some combination of well-known strategies to choose your teams – pick the higher seed, pick teams playing close to home, pick teams that are hot and the ever-popular, pick the team with the cutest mascot. Maybe this year you’ll get lucky…

That kind of cavalier approach is probably fine for your basketball bracket, but if you pick your 401(k) or 403(b) investments in a similar fashion, you could be significantly and negatively impacting your investing objectives.

FIVE STEPS

So how do you pick investments from that daunting list of investment choices? Truthfully, it’s not easy and it can be quite complicated based on your situation and your individual risk factors, but in general there are five basic steps everyone should follow:

1)     You should first determine your ability and willingness to take risk. This can generally be accomplished by taking a risk questionnaire or other assessment tool either on-line or with a professional.

2)     You should align your risk tolerance with an appropriate asset allocation. There too, there are many sophisticated models available on-line, usually used in conjunction with a questionnaire or you can discuss your situation with a professional. No one single chart can be used by everyone, but a simple model may look something like this one, which is provided for illustrative purposes only.

 

3)     Determine the asset allocation mix of the funds available to you and find the possible combinations of funds that align to your allocation. There may be funds that you don’t want in your allocation and there may be many choices to meet a particular category, such as U.S. stocks. You’ll also want to be sure that your selections provide enough diversification, particularly if you have company stock.

4)     Make your final selections. Once you have a diversified mix of possible choices across multiple asset classes and are still trying to choose which ones - funds with lower fees and funds that have higher risk adjusted returns are two areas to consider focusing on. Sometimes that information is summarized in a nice chart and sometimes that information is provided in summary form through a third party, but often you have to go from fund to fund to make that assessment. Assessing funds against their benchmark and against their peers is another prudent step.

5)     Finally, you need to periodically rebalance your portfolio. As investments increase and decrease in value, your portfolio may become riskier than you intend or not be risky enough. You may have to buy or sell some positions to bring your asset allocation back into balance.

Again, each of those steps can have many complicating factors depending on your individual situation. If you would like help with any of the steps above or would like professional management of your 401(k) or 403(b), please schedule a free consultation or give us a call.

PLEASE REMEMBER:

- Investing and investment management involves risk, including the loss of your initial investment or any investment gains.

- Past performance is no guarantee of future results.

- This generic information is provided for educational purposes only and should not be construed as a recommendation for any individual to take a specific action.

- Please invest prudently and seek professional help from a financial advisor, investment manager, accountant, lawyer or other professional on matters that you are unsure of or that are unique to your personal circumstances.

- Financial Advisor and Investment Management Services provided by J. Bradford Investment Management, Nashua NH.