Retirement Plan (401k, 403b, 457b) Investors

This page provides a helpful guide on how to manage investments in their retirement plan (401(k), 403(b), 457, etc.) accounts.

We divide the guide into three sections: 1). for beginners or for those who prefer a simple solution; 2). for those who have some experience with investments and want to have a custom portfolio to suit their particular situation; 3). for people who are concerned about their investment volatilities and want to pursue a bit of active management to manage risk.

The goal is to provide everyone with different backgrounds some workable solutions that should be reasonable and prudent.

For Beginners or Those Who Prefer Simple Solutions

For those who are just starting out in 401(k) investing, a plan with a dozen of fund choices can be overwhelming. In fact, many beginners have no ideas what these funds are, let alone know how to choose them to invest.

That’s where a target-date fund comes in. All you need to do is to pick the year closest to when you plan to retire—say 2055 or 2040—and the fund handles everything else. It adjusts automatically over time, getting more conservative as you get closer to that date. You don’t need to rebalance. You don’t need to second-guess it. The fund does that for you.

In fact, most plans (check with your plan’s sponsor if you are not sure) use a target date fund as Qualified Default Investment Alternatives (QDIAs). See this article on QDIAs.

Another solid option is a balanced fund—something that just holds a steady mix of stocks and bonds. It won’t change over time like a target date fund, but it still gives you diversification in a single fund. In the case your plan doesn’t have target date funds as investment options, finding a balanced fund (such as 60% stocks and 40% bonds like Vanguard LifeStrategy Moderate Growth Fund VSMGX) is another reasonable default choice. See this article written by the famous financial writer Mark Hulbert here.

Either way, the key is this: consistency beats cleverness in the beginning. Simplicity is often best.

For Those Who Are Experienced or Just Want to Have More Custom Solutions

Maybe you’ve moved past the basics. Maybe you’re rethinking your allocations, wondering if you should lean more into stocks—or pull back. You’re not trying to game the system, but you also don’t want to be passive anymore.

This is where our RAID method  approach comes in. It stands for Risk Assessment, Asset Allocation, Investment Selection, and Discipline. It sounds like a mouthful, but really it’s just a simple way to help remember how to systematically build a solid portfolio.

First, you think honestly about risk. Not just how much you can tolerate, but how much you need to take. Use this Asset Allocation Calculator to help you to figure out how much should be allocated to stocks and bonds. In general, stocks and commodities are so called risk assets that tend to more volatile than bonds.

Then, you build your allocation from the funds in your plan—maybe leaning toward value stocks, or adding a bit more global exposure. Here you decide that among the decided stock allocation, how much should be in US large cap stocks, how much in value stocks, or small cap stocks, how much should be in international stocks, etc. If you are confused, stay simple, use template reference for some ideas. Remember, simple doesn’t mean bad. Often, it beats whatever sophistication is. This is especially true in investing.

Then, pick the best funds or options you’ve got. Most plans don’t offer a perfect menu, but often there’s enough to work with. The following rule of thumb could be helpful:

Rule of thumb for selecting funds:

• For stock exposure, prioritize index funds — low-cost and broad based index funds first.
• For bond exposure, prefer high-quality actively managed total return bond funds. Refer to MyPlanIQ’s Fixed Income Investors for the total return bonds we like. Otherwise, low-cost bond index funds are always a choice.

Finally, and this is the hard part—you stick with it. Through good months and bad. Stay the course and perform regular annual rebalance and adjust your risk exposure as your personal situation such as age and financial situation change.

You don’t need to check it every week. Just set something that reflects your thinking—and adjust it if life changes.

For Those Who Are Concerned About Investment Risk and Volatility or Want to Improve Returns with Lower Risk

Some folks like to stay closer to the wheel. Maybe you’ve seen a few market cycles. Maybe you’re just wired that way—wanting to pull back when things feel frothy and lean in when others are panicking. Or more often, if you are close to your retirement or your financial situation entails you to be more cautious. If that’s you, then a more tactical approach might make sense.

This isn’t about timing every wiggle in the market. No one can do that consistently. But it is possible to use a simple, rules-based method that helps manage risk—especially during the big drawdowns. That could mean reducing stock exposure when things look stretched.

Because when you’re close to retirement—or just trying to avoid going backwards—preserving capital matters a lot more than squeezing out an extra percent.

Over the years, MyPlanIQ has developed a solid tactical asset allocation strategy that has been applied to various investment configurations.

1. Utilize Composite Allocation Indicator

The simplest application is to utilize MyPlanIQ Composite Allocation Indicator to your 401(k) account. When the monthly indicator is in GROWTH mode, this means your 401(k) account could stay in or return to your original allocation, including target-date funds (if your account holds them), balanced funds or simply stock funds if your account is in a custom stocks and bonds fund portfolio, to capture potential upside. When the indicator is in SAFE mode, you reduce or switch to safer investments such as money market funds, stable value funds or just a diversified bond fund.

On the dashboard, for a paid subscriber, you are seeing this real time indicator status. You also receive a monthly email to notify you the indicator status or change.

2. Customize a Model Portfolio

The second choice is that you can construct a full custom strategic or tactical portfolio. You can utilize MyPlanIQ asset allocation strategies (Tactical TAA or Strategic SAA, see the white paper) using the investment options in your 401(k) plan and with your own risk profile. You can let us know your most up to date 401(k) plan investment options and our system will create those model portfolios for you to follow. Follow the Get Started Now flow to construct such a portfolio that’s tailored to your risk tolerance and return expectations.

3. Follow a Pre-made ETF Model Portfolio

For your brokerage based accounts such as IRAs and 401(k) brokerage window accounts, you can also choose to follow MyPlanIQ pre-made ETF model portfolios. You can find these model portfolios on the Dashboard or on What We Offer.

See our Asset Allocation Strategies white paper for the effectiveness of the strategies.

Bottom line—there’s no perfect strategy. But there is a way to match your approach to the kind of investor you are, and the kind of retirement you’re aiming for. You don’t need to do it all. You just need to do enough. And if you’re thoughtful, even a little effort can go a long way.