|Managing your IRA for maximum gain
Have you checked your IRA recently? Americans have
stashed trillions of dollars in IRA and 401(k) retirement plans
but too many of us are treating those accounts as though they're
bottles of fine wine -- leave them in the dark and forget about
Unfortunately, that's not the best way
to grow a retirement nest egg.
The key to getting the biggest bang for your buck
is asset allocation. The right mix of stocks, funds, bonds, cash
and other investments should balance risk and return in a portfolio.
Saving without a plan
But a study by the American
Savings Education Council shows that nearly 60 percent of plan
participants don't have an asset allocation strategy.
It gets worse. Wayne Gates, director of the Investment
and Pension Unit at John Hancock Financial Services in Boston, says
even in cases where employers offer financial planning services,
less than half of the employees take advantage of them.
"Financial planning gives them a target or reference
point on how to invest and how to hang in during difficult time
periods," says Gates. "People should periodically review
their asset mix and determine if they're at their target. If they'd
gone through financial planning they'd be able to come up with that."
In addition to taking advantage of any help your employer
provides, Gates points out that many financial institutions, including
John Hancock, have IRA calculators on their Web sites that can be
helpful in figuring how much money you'll need in retirement. There
also are sites such as financialengines
that, for a fee, will help you decide which funds suit your financial
goals and risk tolerance.
Too often, people who have mutual funds in their portfolio
think that because a pro is being paid handsomely to manage the
fund there's no need for them to check on it. Fund managers routinely
trade stocks within a fund and that could be costing you money --
or putting your portfolio in a higher risk category than makes you
Check your money often
Maria Scott of the Chicago-based American
Association of Individual Investors says you should review the
progress of your mutual funds every quarter.
"Make sure the manager is managing the fund as
you expected. If it diverges from your original goal, find out why
the manager has invested in different stocks. One clue to the fact
it's changed is comparing the performance of a mutual fund to an
index that covers the category you think best represents what that
fund should be doing, such as a small cap index."
Another clue that a fund's stock mix has changed is
if the sector your fund is in did (or didn't) do well, but your
particular fund went in the opposite direction.
"If a value fund had suddenly taken off last
year when most didn't," says Scott, "that may be because
the fund switched over to more growth-oriented stock. You need to
decide if the manager was right in making that decision."
Something else that deserves consideration is to speak
to a professional. You don't necessarily need to hire them to manage
your account, but they can get you started in the right direction.
"The shift away from defined benefit pension
plans has shifted an incredible burden to employees," says
Hancock's Wayne Gates. "It's an awesome responsibility and
most people don't have the expertise to do that."
When looking for a financial planner, check for credentials
such as certified financial planner, chartered financial analyst
or a member of the Financial Planning Association. Many certified
public accountants also provide investment advice.