Pauline R. from Destin, FL asks: Hi Mitch, I just started a new job that offers several new 401(k) investment options, some of which are “target date funds” that match my retirement year. Before this, I worked at DuPont (Dow Chemical) for 25 years and grew my 401(k) with company stock and a mutual fund a co-worker recommended. My question is – is it worth putting everything in the target date fund and just calling it a day? I’m not sure I have the time or the ability to research all of these new options.
Mitch’s Response:
Thanks for writing, Pauline. With 25 years at DuPont I’m sure you’re getting closer and closer to actually retiring, so this is a great time to be asking these types of questions. I have several pieces of general advice for you, and I’m just going to number them below so you can walk through them one-by-one – in a checklist sort of fashion. Here they are:
- Have you considered rolling your old 401(k) into your new 401(k) plan? You’d need to check with DuPont and your new employer, but a quick phone call with Human Resources/your retirement plan administrator should do the trick. Most 401(k) plans allow you to roll a former 401(k) into a new plan. I like this approach because your retirement plan assets are nicely combined in one place so that it’s easier to manage and diversify properly. I personally like keeping everything together when possible.
- Make sure your portfolio is diversified! From the sounds of it, you may have too much DuPont/Dow Chemical stock? Based on the way you asked your question, it sounds like a high percentage of your 401(k) is invested in one stock. As you get older, this becomes a high-risk approach that is probably too high for someone nearing retirement. Sounds to me like an early step for you is going to be trimming back some of your DuPont stock and trying to build a more diversified portfolio that suits your age, investment objectives, and risk tolerance.
- Target Date Funds are useful, but I think you can do better. Target date funds are generally only based on your age but do not take into account other important investment factors like market conditions, your risk tolerance, your income needs, and so on. Target date funds, in my view, are a bit too cookie cutter for a financial situation that is probably more complex. You mentioned there are several other investment options available in your plan, which sounds to me like your 401(k) investments can be customized to better suit your goals and objectives.
- Ask for help! I’m glad you emailed me, but why stop here? If you need more help, I recommend reading our Retirement Guide.1 My team and I developed this guide to help people nearing retirement determine their long-term goals, risk tolerance, investment time horizon and other factors that make up your financial situation. At Zacks Investment Management, we don’t offer ‘cookie cutter advice’ to our clients. Instead, we design customized investment portfolios based on your individual needs. Likewise, this guide is designed to help you look at your unique retirement needs and financial situation. So, if you have $500,000 or more to invest, this guide could help you take the necessary steps to reach your retirement goals. Click on the link below, to get your copy today!
Disclosure
1 ZIM may amend or rescind the Retirement Guide for any reason and at ZIM’s discretion.
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