TNJ - February 2001 - Finance 2001 - Investing Wisely by Dale Bryant

Investing Wisely
By Dale Byrant

After the correction the stock markets have had lately, it’s a good time to take another look at your 401(k) plan and make some timely adjustments. Although you should never be worrying about your 401(k) on a daily basis, you should make a habit of reassessing it at least twice a year. Whether you have a 401(k) plan, a 457 or a 403(b), you can maximize it for a comfortable retirement. Nonetheless, you need to understand common myths involved in 401(k) plans:

Myth—you should always maximize your 401(k). Not always. First, you should contribute to your 401(k) up to the percent your company will match your money. If that amount is 6 percent of your salary, for example, then you should contribute 6 percent. If you wanted to save more than the matched percentage, you should then maximize your ROTH because of the flexibility the ROTH provides. If you are able to maximize your ROTH and you have money leftover, you can go back and use the 401(k) for further contributions.

Myth—you should first look to your 401(k) for a loan. While on the surface it looks like a good idea, you should explore other alternatives first. You should only take a loan if you are fully aware of the downside. What usually happens is that after you take the loan and you no longer work with the company, if you transfer your 401(k) or the company forces you to transfer your 401(k), the loan is treated as taxable—meaning that dollar amounts are added to your income and taxed.

Myth—you should have as many company stocks as possible, especially if you get free shares or discounted shares. This is a very dangerous move. When many small- and medium-sized firms go bankrupt, they leave your 401(k) assets in legal limbo for many years, and some larger and more established firms can be disastrous.

Myth—taking money out of your 401(k) instead of putting it in an IRA program isn’t so bad. It could be the biggest blunder of your life, especially if the dollar amount is large. Most Americans choose to cash out of their plan, taking the tax/penalty hit and end up spending months or years before retiring. Since most of your portfolio growth happens in the later years when your assets have been built up, premature liquidation will hurt your retirement.

Cautious Investing. Whatever your financial goals, low-yielding investments will make it almost impossible for you to achieve them. You should not put your money in low-yielding accounts such as CDs, money market accounts, treasury bond funds, growth and income funds and Guaranteed Investment Contracts, otherwise known as GIC’s. If you have assets in any of these kinds of funds move them to stock funds if you are getting close to retirement and you want to make sure your money is there.

Be wary of international funds. Although a good investment practice is to diversify your assets in foreign markets as well as U.S. markets, the place in which to do this isn’t in your 401(k) plan. First, you only get one international choice, which usually is not the best one. Outside of your 401(k) plan you could choose a better-than-average international fund such as Janus Worldwide.
Remember, keep your allocation of company stocks at no more than 15 percent of your 401(k) assets. You can keep it closer to 15 percent if you work for a large and growing company such as General Electric, but the smaller your firm is and the more risky the industry in which you work is, the smaller the required allocation.

Don’t chase performance. When you sit down to reallocate your 401(k) and you look at the funds that have had sizzling performance over the last year, don’t be so quick to put all your money there. Many investors move large amounts of money to the next hot thing, only to see that fund take a dip in performance. Just because a fund has had a good year doesn’t mean it can continue to match that performance for the next several years. If you see a fund do 100 percent plus, you should ask yourself—what is the likelihood that it can continue to do this?
If you still don’t feel comfortable selecting the funds in which to invest your 401(k) money, consult with an investment professional. You want to build a smart portfolio that will help you reach your goals in the years to come.

Dale Bryant is the portfolio manager for The Bryant Group, a Black-owned investment firm in Manhattan. He can be reached at db@bryantgroup.com. His Web site is www.bryantgroup.com.

Search for:

Search:

Match:

Our regular monthly features: Banking, Tax Reports, Auto Current, Personal Finance, Book Review, Business Law and Technology.

Click Here to subscribe to the Network Journal. For applying on-line your first issue is FREE.