Smart401k Blog

Regular readers of the blog will know that I have a three-year-old son.  As we prepare for Christmas, I recently learned about one of the greatest tools a parent can have – making sure my child knows the difference between naughty and nice as it relates to Santa’s willingness to bring him presents.  Every time I remind him that only ‘nice children get presents’ he quickly reverts to his usual well-mannered behavior.

Thinking of how this relates to retirement plan investing, there are many things you do each year that translate to whether you are naughty or nice to your future retired self.  In a year that continued to be one of heavy volatility and uncertainty, it’s important to reflect back to give yourself perspective on how you behaved this year – were your actions those that will reward you down the road, or were they more likely to give your retirement future a ‘lump of coal.’

You may be on the ‘naughty’ list if you:

Made major investment decisions based on emotions. During times of market difficulty, many investors panic, leading to bad investment decisions.  Over time, this behavior can dramatically decrease retirement savings.

Decreased or stopped contributions. Psychologically, it’s difficult to invest in declining or poor performing markets, but you actually improve your return potential by maintaining your contributions, especially during market downturns.

Haven’t reviewed your retirement outlook. It’s not enough to just save and invest; you need to periodically review your overall retirement strategy to determine if you are on track to meet your goals.  Here is an article I wrote that can help you get started.

You may be on the ‘nice’ list if you:

Began or continued an appropriate investment strategy and stuck with it. Your chances of retirement success increase when you have a strategy that you are able to maintain and adjust as needed as you approach retirement.  One of the key factors we look at is each individual’s tolerance for risk; having a strategy that you are comfortable with means you are less likely to abandon it when times are tough.

Maintained or increased contributions. Unless you are in a state of financial emergency, this is highly recommended.  If you have trouble making significant jumps in contributions, try increasing your deferrals by 1% a year.  The difference in take home pay is often barely noticeable.

Established or reviewed your retirement plan outlook. We suggested our clients do this a few months ago and many provided feedback that it was a valuable exercise.  Some found they are comfortably on track and others discovered they needed to make some changes in order to meet their goals.

If you are on the ‘nice’ list this year- congratulate yourself.  If you were ‘naughty’, start thinking about how you can change that in 2010.  Many of the things we do during the course of our life affects how we live in the future.  Just as I need to remind my son that only ‘nice children get presents’, keep reminding yourself that being ‘nice’ will give you one of the greatest gifts you can receive – a long-lasting and comfortable retirement.

Kevin Jaegers, Senior Investment Advisor

This entry was posted on Tuesday, December 22nd, 2009 at 3:07 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.