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

Use these three simple steps to check the performance, fees and asset allocation of your IRA, 401(k) and other investments.

Do you know how hard your money worked for you in 2017?

If not, it’s time to do a 15-minute checkup of your investments and make some plans for 2018. Don’t worry. It’s not hard to do. Just follow these three simple steps.

Step 1: Check your performance

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, wait until the year-end statement arrives in the mail.

For now, 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.

You need to have an apples-to-apples comparison. That means comparing bond funds with bond funds, balanced funds with 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.

Step 2: Review the fees

Look at what you paid in fees. If you’re investing in mutual funds, check out the part of your statement that lists each fund’s “expense ratio.” If you don’t find it on your 401(k) paperwork, call your employer’s HR office and ask.

Obviously, lower fees are better. Some mutual funds have expense ratios as low as 0.1 percent, or even lower. Others might have combined fees well over 1 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 monster returns for many funds in 2017. If a couple of your investments did especially well, you might be weighted too heavily in a specific 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 if you do so, you risk losing big if those funds hit a bump.

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 stories at Money Talks News such as:

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.

Maryalene LaPonsie
Maryalene LaPonsie
After 13 years as a staffer for a Michigan legislator, I decided it was time to quit the commute and work from home instead. For the past three years, I’ve been penning ... More

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