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Should I Work with a Financial Advisor to Optimize my 401(k)?

Should I Work with a Financial Advisor to Optimize my 401(k)?

The 401(k) is a common retirement savings plan in the United States. Employers often match their employees’ contributions to a 401(k) up to a certain amount. However, the exact funds you invest in under your 401(k) are up to you. This flexibility certainly has its benefits. You can devise an investment strategy that meets your unique needs while also feeding your passions. 

Here’s the downfall to the self-strategy allowed for by 401(k) plans: many employees are not sure what stocks, bonds, and funds to invest in. There is no cut-and-dry answer, either. The right investments for you may not be the best investments for your coworker. Luckily, there is a solution. Consider working with a Financial Advisor to optimize your 401(k) investment strategy. Here are some key benefits of this approach.

Life-Integrated Advice

How much should you be contributing to your 401(k)? How much risk should you be taking with your investments? Should you be completely invested in stocks, or should you add some bonds to your portfolio? In order to answer these questions, you really need to consider your overall lifestyle, financial picture, and goals. For instance, someone with $20,000 in student debt will make different investment decisions than someone who owes $200,000.

A Financial Advisor will take the time to get to know you and your lifestyle before working to optimize your 401(k). They’ll consider your other expenses, your budget, your family’s needs, and your goals. Your investing strategy will then feel realistic and achievable.

Goal-Based Approaches

Watching a percentage of your paycheck be diverted to a retirement fund can be a little painful if you’re only focused on the other things you could be spending that money on. You’ll have an easier time watching that money being taken out if you know it’s helping you work towards certain goals.

A Financial Planner will talk to you about your goals for retirement. Even if retirement is decades away, creating a vision for that part of your life will give you and your advisor a better idea of the portfolio you should be building. This way, when you see money being deducted from your paycheck, you can think of it as just another step towards what you want to achieve.

Age-Dependent Strategies

Sometimes, people rely on their older coworkers for investment advice. They assume these older adults have more experience and knowledge, and that the investment strategies they’re using must be solid. In some cases, this may be true. But there is a major issue to consider here.

Your older coworkers are at a different stage of life than you. For them, retirement may only be 10 or 20 years away, while you’re still 30 or 40 years out. Because you are different ages, your investment portfolios should be different. You, for example, may benefit from investing in more risky stocks. Your older coworkers may trend towards less risky, more stable investments. 

When you work with a Financial Advisor, they don’t simply suggest that you invest the way that they do. They make investment recommendations based on your age and financial position. You won’t lose out because you made the mistake of investing the way a 50-year-old would when you were 30.

Ongoing Optimization

Your investment strategy can and should change over time. Your income may go up. You may change industries, or your family’s needs might change. You will also grow older and move closer to retirement, which means your risk tolerance will change.

Working with a Wealth Manager is not a one-time thing. You can and should meet with your advisor regularly over the years to evaluate how your 401(k) is structured and explore any changes to be made.

At each meeting, your financial advisor will review what’s changed in your life, what questions you may have, any new goals you’re exploring, and so forth. When changes are made to re-optimize your 401(k), you’ll understand those changes and their purpose. Over time, your understanding of investing and goal setting will grow, and your relationship with your Financial Advisor can become more collaborative.

Optimizing your 401(k) can help ensure you meet your retirement goals and make wise financial decisions throughout your lifetime. If you’re looking for a Financial Planner, contact RLJ Wealth Management to learn more about our services. We’ll walk with you every step of the way as you plan your 401(k) and overall finances.