Why Should You Rebalance Your Portfolio
The purpose of rebalancing is to maintain the desired risk-reward ratio in your earmarked portfolio for your goal. For example, when you set up a Guideline 401 account, you take a suitability questionnaire that recommends a 401 portfolio allocation for you, based on how much risk you can handle as an investor. That portfolio allocation is chosen for the long term goal of retirement, and the recommendation factors in both investor and market variables.
Managing 401 Plans For A Small Business
Setting up a 401 can be complicated, but you don’t have to do it alone. Look for a provider with an excellent track record that can help you get started, manage your plan, and even share ideas and guidance to maximize the value to you and your employees. Doing so can go a long way in ensuring an ongoing, positive benefit for years to come.
Be Helpful But Not Insulting
While it might help you identify gaps that lead to you being able to present and offer solutions, pointing out all of the mistakes a plan sponsor is making is not how you start to build a good relationship. Take caution when going into a new prospect with recommendations. Theres a fine line between pointing out possible improvements and offending the person responsible for the existing plan choices.
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How Many Participants Borrow Against Their 401s
Although most 401 participants have access to loans from their plans, most 401 plan participants do not borrow against their balances. The EBRI/ICI 401 database reveals that about 53 percent of 401 participants were in plans that offered a loan option in 2018, and only 17 percent of those eligible for loans had loans outstanding.
How Can 401s Fit Into Your Plan
For many, a 401 is a primary retirement savings plan. Once you leave an employer, you are eligible to transfer your old 401 plan accounts to your current employer’s plan or to roll it over in an IRA. You can also delay distribution or take a distribution.
Your advisor can explain your options and talk to you more about 401 plans.
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S To Find Your Old 401
Its not all that uncommon to lose a 401 especially if you didnt have much invested to begin with. Its possible you were automatically enrolled in a 401 by your old employer and didnt know the account existed. Or maybe you got caught up in the process of switching jobs and forgot to tie up loose ends.
Whatever the case, you can rest assured that your retirement funds arent gone, and youre entitled to them. Its a simple matter of tracking them down and you can start by contacting your old employer.
1. Contact your old employer
Start your search by reaching out to the human resources department of your previous employer. If you dont have HRs email address or phone number on hand, reach out to any company employees youre still in touch with to request the information.
In most cases, it shouldnt be too hard to reconnect with your old employer, but if your company merged with another firm or went out of business, you may need to move on to step two.
2. Speak to the plan administrator
Now lets say you havent had much luck reaching your old company. The next point of contact will be the plan administrator, which is the investment company responsible for managing the investments in your old 401 account.
3. Search national databases
If you follow these steps and still come up short, try a national database. There are numerous sites and services designed to connect former employees with lost retirement savings.
Fiduciary Issues With 401 Brokerage Accounts
Plan sponsors that offer brokerage accounts should carefully analyze the potential liability of substantial losses sustained by novice investors. Many sponsors believe that they cannot be held responsible for what happens in these accounts, but many benefits experts and attorneys say otherwise.
All other investment options inside qualified plans are required by the Employee Retirement Income Security Act of 1974 to meet certain fiduciary characteristics, even if they are aggressive in nature. Nevertheless, a large percentage of the investment options that participants can purchase in a brokerage account will fail to meet this standard.
To manage a self-directed brokerage account successfully takes a great deal of knowledge and expertise.
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When Can You Access The Funds From Your 401
The money that you contribute from your paycheck will always be yours. Although you cannot withdraw it before a certain period, you can transfer your account if you leave your company. However, the amount that your employer contributes may be subject to a vesting schedule. A vesting schedule is the amount of time you may need to wait before the money your employer contributes becomes yours fully.
Once you are fully vested with your employers contribution, you can take the entire contribution of your employer when you leave the job. If your employers contribution is not subject to a vesting schedule, all of your employers contribution immediately becomes yours, just like your contribution.
How To Sell Your Retirement Plan Advisory Business
Youve built a successful advisory business, and now youre thinking of retiring. Do you have a succession plan? Are you thinking of selling your advisory practice? As you consider your own retirement plan, you need to know the steps necessary to properly position your practice years before its time to sell.
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A Wide Array Of Unbiased Investment Choices
Making the best possible investment decisions for your plan is critical to its success. Whether your advisor is providing investment advisory services or you are considering hiring a third party for this support, ADP offers two distinct options for selecting investments:
- Our open-fund architecture provides access to over 13,000 nonproprietary investment options from 300+ investment managers. You and your advisor can compare and evaluate funds to find the right candidates for consideration.
- Our screened investment tiers put simplicity at the forefront by offering fund tiers that have been evaluated and are organized based on ADPs underwriting criteria.2
In both options, as an independent record keeper, ADP is able to provide investment options without any bias or agenda.
A separate, indirect subsidiary of ADP, Inc., ADP Strategic Plan Services, LLC provides fiduciary investment management services. including the analysis, selection, monitoring, and if necessary, replacement of investment options on behalf of employer-sponsored retirement plans.
Does Age Affect A 401 Participants Asset Allocation
The asset allocation of participant account balances varies considerably with the age of the 401 participant. Younger participants invest more in equities and older participants tend to invest more in fixed-income securities such as bond funds, money market funds, stable value funds, or GICs. At year-end 2018, on average, participants in the EBRI/ICI 401 database in their twenties had 74 percent of their 401 assets invested in equities while participants in their sixties had 52 percent of their 401 assets invested in equities.
401 account portfolio allocation also varies widely within age groups. At year-end 2018, 75 percent of 401 participants in their twenties held more than 80 percent of their account in equities, and about 13 percent held 20 percent or less. Of 401 participants in their sixties, 14 percent held more than 80 percent of their account in equities, and 16 percent held 20 percent or less.
Asset Allocation to Equities Varied Widely Among 401 Plan ParticipantsAsset allocation distribution of 401 participant account balance to equities, percentage of participants, year-end 2018
Note: Equities include equity funds, company stock, and the equity portion of balanced funds. Funds include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product invested primarily in the security indicated.
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What To Do When You Find An Old 401
Once youve reconnected with your old 401, its time to decide what to do with it:
- Leave it with your old employer. If you contributed at least $5,000 to your old 401, you might consider leaving it where it is. But this may only be worthwhile if the account has competitive fees or offers access to unique investments. Otherwise, itll be yet another account to keep track of come retirement, and you may be better off rolling it over.
- New 401 rollover. Has your new employer offered you a 401? Consider consolidating your retirement funds by rolling your old retirement account into a new 401.
- IRA rollover. If you dont have a new 401 to move your old retirement funds into, consider rolling over into an individual retirement account. That way, your funds retain their tax-advantaged status.
- Cash it out. Consider this a last resort because cashing out a 401 ahead of schedule can result in major penalties.
- If youre older than 59 ½, you can access funds without penalty.
- If youre under 59 ½, withdrawals are subject to a 10% tax penalty and other fees.
Tip : Establish Your Value Before Mentioning The Call To Action
When you send an email, especially to prospective clients, youre hoping they will read it and then feel compelled to reach out. However important it is to sell a plan to a new client, its even more important to make them feel like what youre selling is valuable to them. And you should aim to establish why your service is valuable before you ask them to give you a call or email you back.
Its easy to get caught up explaining who you are and what you want the reader of the email message to do, but if they dont already believe what you are selling is valuable, it can come across as pushy or annoying. Think of it this way: youre providing a solution, but if you dont give the reader a reason to believe there is truly a problem that needs solving, they wont view your services as the answer. Theyll write it off as a luxury or unnecessary expense and send your email right to that spam or trash folder.
Once youve explained how they could benefit from your services, you can then sweep in with your contact information and offer to set up a conversation.
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What Role Do Mutual Funds Play In 401 Plan Investing
About 66 percent of 401 plan assets were held in mutual funds as of the end of June 2021. The remaining 401 plan assets include company stock , individual stocks and bonds, guaranteed investment contracts , bank collective trusts, life insurance separate accounts, and other pooled investment products.
Rebalancing A Taxable Brokerage Account
In this article, were specifically addressing rebalancing in a 401 plan. The advice were sharing could also apply to another tax-advantaged account like an individual retirement account. But if you need to rebalance a portfolio in a taxable brokerage account, theres a bit more that goes into it.
In tax-advantaged retirement accounts, your investments grow either tax-free or tax-deferred. And you dont have to pay capital gains taxes when you sell an asset for more than you bought it. But in a taxable brokerage account, youll be on the hook for capital gains taxes when you make a profit on an asset. Because of that, rebalancing in that type of account requires a bit more care.
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Account : Fidelity Brokerage Investment Account $10:
- $5,300: Fidelity Spartan Global ex U.S. Index Fund
- $5,600: Vanguard Dividend Growth Fund
- 76.2% stock investments: $16,800
- 23.8% bond investments: $5,250
In keeping with her preferred asset allocation, the new portfolio value by asset class should be:
- 75% stock investments: $16,537.50
- 25% bond investments: $5,512.50
The goal of asset reallocation is to return the asset class percentages to the predetermined asset allocation.
Ideally, during January, Kendra will rebalance to get back to her original asset allocation. Shes not sure how to optimally buy and sell funds to rebalance her 401 account. Up until now, weve looked at her total investment portfolio. Now, lets break out the 401 account.
Look At The Whole Investment Pie
A frequent mistake investors make is not looking at their whole investing pie. When considering your asset allocation, imagine that the assets in every one of your investment accounts are actually in one account. The one big account includes your 401, Roth, or traditional individual retirement account and your taxable investment brokerage account holdings.
Picture your investments and accounts like a strawberry, banana, and rhubarb pie. You dont have one section for the strawberries, another for the banana, and a third for the rhubarb. All the ingredients in your accounts go into the asset allocation pie.
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How Much Does It Cost To Set Up A 401 For A Small Business
Costs to set up a 401 plan will vary depending on the size of your business and the types of benefits you select. Initial setup fees can generally run anywhere from $500 to $3,000, depending on the chosen retirement service provider. Other costs to consider are fees associated with rolling assets over from another plan and initial consulting costs for investment advice.
A Guide To Rebalancing Your 401
Your asset allocation is one of the most important components of building your investment portfolio. In other words, what percentage of your portfolio will you devote to certain assets?
Once youve decided on the perfect asset allocation for your 401 plan and purchased your investments, you might think your job is done. But thats not quite the case. Even many passive investing strategies arent entirely set-it-and-forget-it. Instead, youll have to occasionally rebalance your portfolio.
Keep reading to learn what rebalancing is, why its important to your personal finances, and some of the strategies you can use to rebalance your portfolio.
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How To Write Personalized Prospecting Emails To Grow Your Small Business 401 Client Base
When it comes toattracting 401 clients through prospecting emails, there are some specific industry patterns you can use to your advantage. There isnt always a magic word that will get them to open your email or a specific statistic to share in order to pique their interest. It really comes down to highlighting their need for your service and interlacing that need with how you can answer and eliminate their concerns about starting a 401.
Consider the following questions when creating a prospecting email:
What time of year is it? What are small business owners focused on during this quarter?
How are small businesses generally doing in the area where this prospective client is located?
Do I have a specific 401 solution in mind for this prospect? How can I use what I know about that specific solution to engage my prospect?
Do I have any information or background on this client and their industry that I can use to write an email that speaks specifically to their needs?
Now, its also important to do all of this without sending a 1,000-word email or badgering your potential client to call you before theyre ready.
So, how do you go about prospecting for 401 business? Use the basic tips mentioned above, and combine it with your experience and knowledge of the financial industry to get the timing and value proposition right. When youre sitting down to write out a personalized prospecting email , consider aspects from these two general outlines:
Roll Over The Balance When You Change Jobs
Even if your job doesn’t prove to be a long-term keeper, you can roll over your entire 401 balance into an IRA or 401 with a new employer.
You have two rollover options:
Any amounts you don’t roll over are subject to income taxes plus a 10% penalty for early withdrawals. Worse, the funds will no longer be earning tax-deferred income.
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Where The Money Goes
Asset based fees may appear to be investment expenses because they are collected as part of other investment fees . However, they pay for more than just money management.
When asset based fees are charged, they pay for any number of services:
- Investment management
How To Invest Your 401
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Nothing is more central to your retirement plan than your 401. It represents the largest chunk of most retirement nest eggs.
Finding the money to save in the account is just step one. Step two is investing it, and thats one place where people get tripped up: According to a 2014 Charles Schwab survey, more than half of 401 plan owners wish it were easier to choose the right investments.
Heres what you need to know about investing your 401.
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