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.
Many of us could do more to maximize the size of our nestegg. An additional 6% return for a decade doubles the size of our retirement money and, probably, doubles the income. If you have an old, neglected 401K, the chances are you could get an additional 6% over the long term.
Often what stops you is a lack of knowledge and the fear of the unknown. If you have an IRA, the freedom of choice can either paralyze you because there is simply too many alternatives. 401K plans have defined choices and perhaps you don't know which selections to make. Dig out a recent 401K statement (or IRA) and see what your three and five year annual rate of return is (ARR). If your ARR is below 3% then you should read on as there is upside for you
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.
Recently, SAA has been augmented with a more active strategy Tactical Asset Allocation (TAA) which is a 'buy and modify approach. You keep the same asset classes but you may change the ratios depending on market conditions. For example a portfolio with 40% bonds, 30% US stocks and 30% international stocks may see the bond and US stock ratios increased at the cost of the international stocks when international economies are weak.
We compare the results of a 5 asset class SIB portfolio with low cost ETF funds against a leading 401K plan. You can plug in your own numbers for your own 401K or IRA.
A five asset class SIB implemented with Vanguard ETF's with a moderate risk profile has delivered 5 year annual historical returns of 8% for strategic asset allocation and 14% for tactical asset allocation. Contrast this with the IBM retirement plan of 5% and 11% for the same strategies over the same period. Be aware that these are comparisons of like strategies. So, if you were using buy and hold (strategic asset allocation) with the IBM plan, you would be in the 5% range and if you wanted to use tactical asset allocation with and IRA you would be in the 14% range - that is a big difference.
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 was an early user of the system during its development and uses it for his retirement accounts.
-Simon Napper
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