6 Essential Tips to Manage Your 401K

After you’ve done this, take a moment to find the annual increase option with your 401(k) provider. Usually it’s on the same screen when you go to change your contribution amount. I’d like to urge you to sign up for one percent annual increases. This way, your contribution percentage will automatically increase by one percent every year.

Looking at the numbers we used above, this doesn’t even cover the annual three percent inflation—so I’d encourage you to do this now.

Tip #3—Diversify your investment mix

Your investment (or asset) mix is how and where your money distributes in your 401k account. There are two essential things to know about asset mix, specifically about a 401k:

Where your current asset mix is
Where your future contributions are going
Odds are they are the same, but sometimes they aren’t. For instance, if you change your asset mix, it usually defaults to where your future contributions are going, not the past ones. You may need to go in and rebalance your existing portfolio manually. (More on this below).

Typically, your asset mix is shown on the front page when you log into your account. Most providers show you a pie chart of how it all breaks down.

The goal here is to diversify that investment mix. To be cliche, don’t put all your eggs in one basket. We’ve talked about this at length, but I want to reiterate a few points.

First, by not diversifying, you’re not balancing your risk. If you invest entirely in a fund that focuses on energy stocks, your portfolio directly connects to the performance of that one sector. Likewise, if you think you’re cute by investing 100 percent in small-cap stocks, you’re betting that these growing (and often boom/bust) companies will carry you into retirement by themselves.

You should have a healthy mix of stocks and bonds in your portfolio. If you’re not willing to invest the time and energy in looking into each of the funds offered by your 401(k), you might be missing out on opportunities. That said, not everyone has a keen understanding of some of the financial reports these funds put together to know the best option. So you can do one of three things to diversify your investment mix:

1. Pick a target-date fund

Choosing a target-date fund is the most straightforward method, but it might also be the most expensive. A target-date fund allows you to select a fund that aligns with your expected retirement date (i.e., 2060) and the fund will select investments that match up with that goal. For example, it might focus heavily on stocks now since you’d be 40+ years away from retiring, but closer to 2060 it would have “safer” investments like bonds take up the majority of the portfolio.

2. Pick a diversification mix based on your age

We’ve provided rough estimates of how you can diversify your portfolio in this article, but remember that this is just an estimate. For instance, if you’re in your 20s, you might put 60 percent of your portfolio in domestic stocks, 40 percent in foreign stocks, and nothing in bonds. To do this, it will require you to know a little bit about each of the funds offered by your 401(k) provider.

3. Have someone do it for you

I strongly recommend getting targeted investment advice. I’ll discuss this more below, but you might find your best option just to pay someone to manage your portfolio for you. Properly diversifying your investments can be a hassle, and if you might be leaving huge chunks of money on the table in the long-run if you do it incorrectly.

Tip #4—Rebalance frequently (but not TOO frequently)

Rebalancing your portfolio is a necessary (and often annoying) part of owning a 401(k) account. As your portfolio grows, those target categories you decided on before will become imbalanced. Your 60 percent in domestic stocks may soon be 75 percent as those investments grow, shrinking the other investment classes.

Sometimes, your 401(k) plan may be able to do this for you, but I don’t recommend it. Your broker will usually ask you how often you’d like to rebalance and they’ll do it for you. The challenge is you can’t time the markets appropriately or review other options when the time comes to rebalance.

If you’re going to do this yourself, do it right. As we’ve already outlined, you can do this in three steps. What I want to call attention to is the fact you’ll need to stay in touch with your money, which isn’t for everyone. You’ll need to check your balances and rebalance regularly. Meaning you’ll need to buy and sell shares of the funds you own at a regular interval, to keep the balance in check.

For example, if you’ve decided you only want 60 percent in domestic stocks, but when you do your portfolio review it’s sitting at 75 percent, you’ll need to sell shares and move money to the other categories to rebalance it. The math on this can be tricky, so I recommend using ballpark figures and not obsessing over exact percentages.

You’ll also want to look at the cost. Most 401(k) providers will charge a fee when you move money from one asset class to another, primarily if you’ve only held that fund for a short period. Make sure you know what this will cost you and time the move appropriately.

I recommend rebalancing between one and four times per year. You don’t want to wait longer than a year to revisit your asset allocation, but if you do it more than quarterly, you risk missing out on the growth of some of your funds (and paying a premium, too).

For those of you that elect to use a target-date fund or have a person or service managing your portfolio for you, you don’t need to worry about rebalancing yourself—just keep an eye on what changes are being made on your behalf.

Tip #5—Use Blooom to grow your 401(k)

By this point, you’ve managed to locate and log into your 401(k) account, and you’ve learned everything you possibly can about your plan. You’ve also (hopefully) increased your contribution amount and spent some time researching and choosing an asset mix that is appropriate for you. Finally, you’ve come up with a plan to rebalance your portfolio at regular intervals.

Like Jesse Mecham lays out in his book You Need A Budget, to be successful with your money you have to have a plan. You have to be intentional with checking in on what your money is doing. It can be time-consuming, but it’s the only way to ensure you’re on track with your plan and your meeting your financial goals.

That’s a lot of work though, right?

That’s why I’d strongly recommend getting some help if you either, a) don’t know what you’re doing, or b) don’t have the time to dedicate to your money.

I recommend a roboadvisor. Most roboadvisors won’t get involved with your 401(k), but there is a new company that will—blooom. You can read our full review here, but let me give you a quick rundown.

Blooom: Relax, and grow your 401(k)

Blooom is a roboadvisor that will manage your 401(k) for you entirely. You start with choosing a risk tolerance, and blooom will make recommendations for you based on your age, income, and other factors. From there, you will connect your blooom account to your 401(k) account, and that’s it. Blooom does the rest.

They’ll choose your asset mix, based on what’s available in your plan, and rebalance at optimal times so you’ll save the most money on rebalancing and take advantage of expected areas and times of growth.

My educational background is in finance and advanced investments, so I’m comfortable with understanding financial reports and how the stock market moves. Until recently, I’ve always managed my investments because I knew what I was doing and it worked for me. But as I grew in my career and had a child, I found less and less time to manage it. So I decided to look into services that could manage my funds for me.

Blooom charges what I feel is a minimal fee per month ($10). But I ask that you do what’s best for you. Consider how much your time is worth and whether you’re able to dedicate the time to make the best investment decisions possible for your future. If not, I’d at least suggest giving blooom a spin.

Learn more about Blooom or get your free 401k analysis now

Tip #6— Hire a financial advisor

Another option you have is to get targeted investment advice by hiring a financial advisor. But I would not recommend that route. In my opinion, that’s the old-school way of having your money handled. It can be confusing (what are they doing with your money?) and expensive (what are they charging you?).

Please know that this not a knock on financial advisors. I just feel that it’s more work than it’s worth to learn that information. A friend of mine has a financial advisor who manages (among other things) her 401(k). She has to meet with him multiple times per year to review their finances. No thanks. I’d stick with the roboadvisor.


Let’s summarize the five tips for managing your 401(k):

  • Know the details of your 401(k) plan
  • Increase your contribution right now
  • Diversify your portfolio
  • Develop a rebalancing plan
  • Get help with your investments
  • Getting in touch with your 401(k) is critical. You need to know as much as you can about your program and where your hard-earned money is going. These five tips will help you manage your 401(k)more efficiently and plan for (an early) retirement.

This article was republished with permission from Money Under 30.