Most have multiple retirement accounts: 401K with an existing employer, 401K with a previous employer, an IRA which is the result of rolling over an old 401K plan. Most of us also don't pay enough attention to any of these funds that are going to be the bedrock of our retirement.
Your nestegg needs your attention. Increasing your returns by 6% doubles the size of that nestegg in a decade. There is a good chance that your neglected retirement plans could give you a higher income when it comes time to retire.
Too many or too few choices can paralyze because we don't know what to do and we fear making a mistake that will lose money. IRA's have a limitless set of alternatives and the 401K plans may not have the choices you would like to make. If you look at your latest 401K statement (or old IRA for that matter) and see what your three and five year annual rate of return is (ARR). If your ARR is below 3%, read on, there is upside for you.
SIB (Simpler Is Better) portfolios are based on simple asset allocation implemented using market index funds that can be measured for performance. We are going to use a SIB to see what is realistic and determine whether the gains are there to make a change to a portfolio.
The SAA (Strategic Asset Allocation) --buy and hold strategy represents what many people may end up with as there is little thought put into which asset classes are represented but these are the most likely ones to be covered.
Over the past decade 'buy and modify' (Tactical Asset Allocation or TAA) evolved whereby you keep the same asset classes but you may change the ratios depending on market conditions. For example a 60% bonds, 20% US stocks and 20% international stocks portfolio may see the bond and US stock ratios increased at the cost of the international stocks when international economies are faltering.
A five asset class ETF SIB is compared against a leading 401K plan. To make the comparison personal, plug in your own numbers.
For example, an ex IBM employee has money in the IBM retirement plan. There is no activity so it's a strategic asset allocation (buy and hold). A good result for a moderate risk approach - assuming good asset allocation choices and occasional rebalancing would deliver results in the 5% range over a five year period. Contrast this with a five asset class SIB implemented with Vanguard ETF's with a moderate risk profile with tactical asset allocation -- 14% for five years with a moderate risk profile. So the difference between staying in and rolling over to an IRA is 9% a year - that difference doubles your money in eight years.
What to do? Find your latest 401K and IRA statements and see your annual rates of return - some sites will calculate that for you. Then compare what you are getting with what's possible. Finally decide what you are going to do about it. Remember, you are talking about your retirement.
Simon Napper is President and Founder of MyPlanIQ.
-Simon Napper
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