THE IMPORTANCE OF REBALANCING YOUR 401(K)

by Christophe R. McCrea, CFP® 

Rebalancing your 401(k) means bringing your asset allocation back in line with your target allocation. To do this you can sell some of your current 401(k) investments or redirect future contributions toward other investments.

Rebalancing is necessary for a variety of reasons, including:

• It helps balance your risk across investment classes.
• It makes you look at how your investments are doing.
• It imposes a disciplined approach and stops you from making hasty decisions.
• It lets us see how your 401(k) assets fit within your overall portfolio.

Rebalancing is something we strongly encourage clients to do with our help. We can readily identify the classes and risk profiles of the investments offered in your 401k, and model your 401(k) as part of your complete investment diversification and strategy.

Here’s how we can help you rebalance, all within your overall financial picture:

1. Review your investment goals and time horizon. Your target allocation will depend largely on your age, risk tolerance, and savings goal. 
2. Consider what has changed since the last rebalance – not just the market/economic conditions, but possibly your salary, personal circumstances, family structure, goals, tax situation, etc.
3. Look at your current asset allocation – and how it fits within your overall investment strategy.
4. Determine a target allocation that suits your overall investment portfolio. 
5. Identify and recommend specific investments to sell or buy, i.e., those that are suited to your financial portfolio.

Rebalancing your 401(k) is an important and tax-efficient way (no tax consequences) to update your investments to ensure they stay aligned with your financial needs as well as with the ever-changing markets and economy. There are no strict rules on when to rebalance, but we typically suggest one to two times a year.

If it has been a while since your last rebalance, or if you simply want guidance regarding the investment choices in your 401(k), please reach out.

by Christopher R. McCrea, CFP ® 

Retirement marks the beginning of a new and exciting chapter of life, filled with opportunities to enjoy the fruits of decades of hard work. It's a time when many dream of traveling, pursuing new hobbies, and savoring experiences they may have deferred during their working years. While it’s perfectly okay to embrace these opportunities and spend money on things that bring you joy, doing so with a careful and thoughtful financial plan can help ensure that you don’t outlive your savings.

Retirement is a well-deserved phase of life where you can truly focus on personal happiness and fulfillment. Whether it’s embarking on a long-awaited vacation, exploring new interests, or simply enjoying more time with family and friends, spending money on experiences that enhance your quality of life can be incredibly rewarding. After all, retirement is all about living your best life and spending money on things that bring you joy is an essential part of that experience.

However, the freedom to spend must be balanced with the reality of managing your finances wisely. Without a solid financial plan, the thrill of retirement spending can quickly turn into a source of stress and uncertainty. Here’s why having a well-thought-out financial plan is essential:

1. Preventing Financial Shortfalls: The biggest fear for many retirees is running out of money. A comprehensive financial plan helps ensure that your spending habits are sustainable over the long term. 
2. Managing Healthcare Costs: As you age, healthcare expenses are likely to increase. A financial plan should account for potential medical costs, including insurance premiums, out-of-pocket expenses, and long-term care. Planning ahead ensures that you’re prepared for these costs without compromising your quality of life.
3. Adapting to Market Fluctuations: Investment returns can fluctuate, impacting your retirement savings. A diversified investment strategy and regular review of your financial plan help manage the risks associated with market volatility, providing a more stable financial foundation.
4. Planning for Inflation: Inflation erodes purchasing power over time. By factoring in inflation when planning your retirement spending, you can ensure that your savings maintain their value and continue to meet your needs.
5. Creating a Legacy: Many retirees also wish to leave a financial legacy for their loved ones or charitable causes. A well-structured financial plan allows you to balance spending with the ability to make meaningful contributions to your estate.

As always, we suggest meeting and reviewing your financial plans at least annually. Retirement is a dynamic phase, and your financial needs and situation may change. Embrace the freedom that retirement offers, but do so with a mindful approach. Your golden years are meant to be fulfilling and enjoyable, and with careful planning, you can achieve the retirement lifestyle you’ve always dreamed of. After all, the ultimate reward in retirement is the peace of mind to truly savor every moment of this well-earned chapter in your life.