This article was last updated on February 7
With the markets rocky, US and global economies facing headwinds and a presidential political campaign in full swing, choosing how to allocate your current and future retirement savings for the medium to longer term is no easy task. But rather than just leave your current 401K and IRA allocations as is amid changing macro and micro socio-economic factors., take some time out and think about your investment strategy. A little bit of time thinking about this and adjusting will potentially save or make you thousands of dollars over the long term.
I generally review my 401K and IRA investments quarterly and adjust my allocations based on where I think markets will be in the next three to five years. I don’t worry too much about the short term or what the daily chatter is on CNBC, Bloomberg and other daily financial news outlets as they tend to go from boom to gloom on a far too regular basis. All my investments are generally via broad based market or index funds – generally Fidelity or Vanguard – and I like to keep it simple. Pick the lowest cost funds and diversify across stocks (domestic and international), bonds and cash (CD’s/Money market).
While an IRA gives you more flexibility in investment choices because it is self administered, most employer sponsored 401K plans nowadays provide good low cost index options you can pick from. And if you can take advantage of 401K contribution matches from your employer, make sure you do so. This is a no-brainer for retirement investing. Also keep in mind current year IRS mandated 401K and IRA limits when investing.
Over the last few years I have been keeping the bulk of my funds invested domestically. As someone in their late thirties, I still feel the need to be aggressive with my allocations as non-equity returns are barely above inflation. But following the big sell-off at the beginning of 2016, I am re-evaluating my current allocations and future contributions. But rather than sell all my equity and move to bonds and/or cash, I feel like stocks still offer the best long term return. Also the stronger US dollar means that international funds are relatively cheap and in the next 3 to 5 years will outperform the US equity market. I am going to slightly increase my bond position (less cash) as I feel bond prices will benefit from the increased volatility.
So based on this, here is how I am investing my 401K and IRA contributions for the year ahead. I have a table here showing my past year(s) average allocations for reference. I will update for 2017 and onwards
|Year||US (Domestic) Stocks||Foreign Stocks||Bonds & Fixed Income||Cash and Money Market|
How are you investing your 401K and/or IRA contributions for the year ahead? Would love to hear your thoughts and if your logic is sound I may even change how I am investing :)