Taking ownership of your retirement plan means staying actively engaged in how it’s being run, particularly if you’ve invested in a “managed” portfolio through your employer. Managed portfolios should not be viewed simply as “deduct money from my paycheck, invest it, and let me know how it turns out in 20 years.” Investors need to keep in touch with stock or mutual fund picks, asset allocations, risk profiles and returns.
Many employers allow employees to manage their own portfolios, of course, but if you’re given the chance to pick a managed portfolio option, Scott Holsopple at U.S. News & World Report lists several criteria that he finds useful in making the choice. He thinks a good managed portfolio 401k plan should:
— Have well-managed underlying investments … that have performed well through market ups and downs relative to their peers in the same asset class, and a fund manager that’s been with the fund through these ups and downs and has managed the fund in accordance with the parameters of its prospectus;
— Only offer portfolios that are diversified across several asset classes.
— Offer several portfolios in order to provide appropriate options for all employees.
— Help employees to select the appropriate managed portfolio based on the individual investor’s risk tolerance, timeline to retirement, retirement goals and personal preferences.
— Not add significant expenses because another layer of management is being used.
The suggestion that really stands out to me is that managed plans should work directly with investors to determine investment time horizons, risk profiles and goals. Too many retirement plans are set up in such a way that the best you can get is a person on the phone to take your buy or sell order, but no advice. Employers that take the time to seek out 401k providers who provide one-on-one advice are hard to find.
If you’re not presented with that particular option, I strongly suggest a financial adviser in whom you can trust.
Investors seeking to be involved and active in their portfolios should also keep track of performance, readily available from Morningstar, and keep track of your 401k plan rating through Brightscope.com. Brightscope can help you determine whether your company is providing a sound, well-managed plan and give you the opportunity to look through both your company plans and those offered directly through brokerage companies.
The takeaway here is that actively managing your retirement funds and portfolio — and that means keeping an eye on whatever your employer is offering, too — is a key strategy in saving for retirement.
Keep Holsopple’s tenants of a good managed fund in mind, and make some decisions on how to move forward.