The 401(k) has been one of the most popularly chosen retirement investment funds for a long time. It offers future savings as well as tax benefits in the form of deferred taxes and tax-free gains. However, it has its own drawbacks,which include the limited choice of investment funds options and the choice of it being left on the client who lacks the expertise to select the right plan.
If you’re applying for a 401(K) soon, then you need a quick guide from William Schantz to help you make the right and informed decisions.
How to pick a 401(k) plan by Schantz?
A 401(K) plan usually offers a selection from 10 to 12 investment funds, so how does one choose the right plan for themselves?
For most investors, limited choices are an advantage as it simplifies the process. However, experienced investors may find it quite restrictive, and choose to go with IRA as it offers unlimited selection.
As per the experience of William Schantz, you should consider the following two factors when selecting a 401(k) plan:
- Returns over a long term:The returns on your fund over the period of 5 to 10 years
- Expense ratio: The total cost of holding the fund per year
According to Schantz, you should be looking for a plan that offers the best returns at a minimum cost. That might sometimes require compromising on performance in exchange for a lower cost. If you want to avoid that, then you can also opt for a higher fee that offers better returns over the long term.
Make sure you pay attention to the long-term performance of a plan. Many plans offer good returns over the first couple of years, but their performance declines significantly after that.
Target-date funds are another excellent option if you want a fund that provides the exact amount that you need on your given retirement date. With this method, the fund makes the investment choice for you, and you’re provided with your desired fund at retirement. It’s a custom-made solution, so it costs a little more.
If you think, that’s the right path for you then you’ll have to manage your own portfolio, let’s discuss how to do that below.
Creating a 401(k) portfolio
When you build your 401(k) portfolio, you need to consider the following factors:
- Your financial goal:Your portfolio must reflect your financial goals exactly. For instance, if you want better returns, it should have more investments in stock funds.
- Diversifying your portfolio: If you have a diverse portfolio, you’re more likely to minimize risks and increase your returns over the long-term.
- Risk assessment: Take risks moderately and manage them in a way that helps your portfolio grow instead of stressing you out.
- Your time frame: If you have a lot of time until retirement, then you’ll have more freedom to take risks and generate returns.
Final Words by Schantz
It is very important to you do your research thoroughly before selecting your 401k plan. William Schantz believes that learning about your options will save you from higher-risk investments and will help you choose the right plan according to your needs.