Year-End Review: Evaluate Your Retirement Accounts in 15 Minutes or Less

Start the new year with confidence. Use these three simple steps, and you can check the performance, fees and asset allocation of your IRA, 401(k) and other investments during commercial breaks.

Better Investing


Do you know how hard your money worked for you in 2015?

If not, it’s time to do a 15-minute checkup of your investments and make some plans for 2016. Don’t worry. It’s not hard to do. Just follow these three simple steps.

Step 1: Check your performance

The first thing to do is pull out recent statements for all your investments, including retirement plans such as IRAs and 401(k)s, or check them online. If you don’t have a recent paper statement or online access to your accounts, you may have to wait until the year-end statement arrives in the mail.

But let’s assume you have your statements in front of you. The important number you are searching for is your fund performance. Once you find that number, your next question should be: “Is that good?”

To find an answer, you’ll need to compare your funds with indexes that include similar investments.

For example, if your funds are invested in large-company stocks, you might compare your performance with the S&P 500. If you have a small cap fund, look to the Russell 2000 for guidance. For more tech-heavy investments, the NASDAQ might be the best comparison.

I know it would be easier if I could simply tell you that if you hit a certain percentage, your investments had a great year. However, anyone who boils your fund performance down to such basic terms is doing you a disservice. You need to have an apples-to-apples comparison. That means comparing bond funds to bond funds, balanced funds to balanced funds and so on.

In addition to indexes, you can also see how your funds performed by comparing them with funds offered by such well-established fund companies as Vanguard, American Funds or Fidelity.

Don’t freak if your fund is a few percentage points off the returns offered by indexes or similar funds. In fact, you might even see that some of your investments had negative growth for the year. Rest assured you’re in good company. As I write this, the Russell 2000 is down nearly 4 percent for the year, while the S&P 500 has a paltry 0.23 percent growth so far in 2015. Only the NASDAQ seems to be having an OK year with 7.65 percent growth at the moment.

The pathetic growth numbers for 2015 are all the more reason diversifying your investments is so important. If you had all your money in the Russell 2000, you’d be seriously bummed right about now. But if your cash is spread among multiple funds, things might not seem quite as bad. (See: “Why You’re Stressed About Your 401(k) and How to Get Over It.”)

Step 2: Review the fees

After you check out fund performance, the next step is to look at what you paid to achieve it. In other words, fees. If you’re investing in mutual funds, this should be listed on your statements as the expense ratio. If for some reason you don’t find it on your 401(k) paperwork, you may need to call your employer’s HR office and ask.

Obviously, lower fees are better. Some mutual funds have expense ratios as low as 0.10 percent. Others might have combined fees that top 3 percent. Look at the fund families in the links above for comparisons. With so many excellent, low-cost investment choices available today, there is little reason to have a fund with more than a 1 percent expense ratio.

Step 3: Rebalance your assets

The final step is to rebalance your portfolio. Over time, as certain funds underperform or outperform, your asset allocation may become skewed. This may be particularly important given the dismal returns of 2015. If a couple of your investments did great while everything else declined, you may be weighted too heavily in a particular area.

Why is that a problem?

Because you never know when the bottom could fall out of a particular fund. It’s tempting to jump on a wave and put all your money in a category that is seeing tremendous growth, but you risk losing big if those funds hit a bump. Does the dotcom bubble ring any bells? It was followed by the dotcom crash.

Ideally, you should have a balance of stocks, bonds and other investments that are based upon your individual goals. If you are 22 and saving for retirement, you can probably be stock-heavy since you have time to weather the market’s ups and downs. But if you’re 60, you’ll want more of your money in bonds and money market funds so you don’t risk wiping out your life savings as you approach retirement.

When you opened your investment account, you may have gotten guidance on the right asset allocation for your situation. Now is the time to rebalance your investments so they reflect that advice.

If you didn’t get guidance, read Money Talks News founder Stacy Johnson’s advice in “A Simple Way to Invest for Retirement” or consult with a fee-only investment professional.

Bottom line? Make an investment review part of your year-end planning. Set 15 minutes aside, follow these three easy steps, and you’ll feel a lot more confident that your money is ready to meet the new year.

Do you have a year-end system for ensuring your finances are in order? Share with us in comments below or on our Facebook page.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. Take 5 seconds and join our family by clicking here. You'll be glad you did. I guarantee it!

More Money Talks News

Comments

  • transmitterguy

    There is only one kind of retirement you can count on:SUICIDE!

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,799 more deals!