5 Minute Read
The last few years have been good ones for investors. In fact, the S&P 500 is up more than 80% in the last five years.
That’s great news for investors trying to build their retirement nest eggs. An 80% gain means someone with $50,000 in their retirement accounts in 2010 had the potential to almost double their savings by the end of last year! And that’s just investment growth. It doesn’t include any money they added to their accounts during that time!
Have your retirement accounts fared that well? Or were your investments once charging on all cylinders, but now—not so much? If you’ve noticed that your investment performance is lagging, now is the time to find out why.
Even if you think your investments are doing just fine, it’s a good idea to make sure you’re getting the most out of each dollar you put into them.
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We’ve come up with a three-step plan for evaluating your retirement performance so no matter what happens in the stock market this year, you’ll have your best investing year yet.
1. Revisit Goals
If we’re being honest, the first step for a lot of us will be to actually set a retirement goal. Only about 44% of us have ever tried to calculate how much we’ll need to save for a comfortable retirement. The rest of us are just guessing.
Whether you’re setting your goal for the first time or evaluating a goal that’s a few years old, your investing pro can help you with the math and projections, but this will be a team effort. Only you have the answers your pro will need in order to make those calculations.
What kinds of questions should you expect your investing pro to ask? Here’s a start:
- How much do you already have saved for retirement?
- How much income do you think you’ll need for a comfortable retirement?
- When do you plan to retire?
- How much are you currently investing each month?
Those are the basics. There’s plenty more to discuss, like whether you plan to downsize your home when you retire, how you plan to cover medical expenses, and when and how much you plan to increase the amount you’re investing for retirement.
It sounds like a lot of work, but it’s worth it. You’ll need a solid retirement goal to complete the next two steps.
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2. Identify Opportunities for Improvement
With your goal established in reality, it’s time to take a look at your current retirement investing plan. Are you doing what you need to in order to reach your goal by the time you plan to retire? If so, that’s awesome—keep up the good work!
But many of us will find some room for improvement. Some common reasons your plan might be off track include:
- You aren’t investing enough. Dave says that you need to invest 15% of your income for retirement. But many of us invest enough to get the employer match on our 401(k)s and no more. That’s a good start, but don’t stop there. Talk to your pro about investing the remainder in growth stock mutual funds through a Roth IRA.
- You need to update your mutual funds. Let’s start off by saying you should always choose mutual funds with a long-term view. If you and your pro select growth stock mutual funds with a history of strong performance, you’ll rarely need to change them. But, if your retirement account growth hasn’t kept pace with the overall stock market, it’s worth a discussion with your pro to see if better options are available.
- You need to rebalance your mutual funds. When you first opened your retirement accounts, you invested equally in four types of mutual funds: growth, aggressive growth, growth and income, and international. Your funds don’t grow at the same pace, however, and that initial balance gets out of whack. You may end up with a lot more of your retirement money invested in aggressive growth funds than you do international funds, for example. It is important to rebalance your retirement accounts so you reduce your level of risk while taking advantage of all types of market conditions.
3. Pay Attention All Year Long
By this point, you’ve invested quite a bit of time into improving your retirement plan. It would be easy to put these changes in motion and then forget about them until next year—or the next, or. . .
You see what we’re getting at, right? If you’ll make the commitment right now to stay on top of your retirement plan performance, you won’t get so far off course that it negatively affects your progress toward your goals.
After you’ve met with your investing pro, go ahead and schedule quarterly reminders for yourself (and your spouse if you’re married) to conduct your own in-depth reviews of your quarterly retirement statements. This won’t be a long or technical process—just a checkup to make sure the changes you and your pro made are getting the results you want.
If you’re not already working with an investment professional, you can start today. Find an investing professional in your area!