| When it comes to your IRA, saving money
is only half the battle. You also need to think about
how you're investing it.
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.
And Americans are either doing a great
job at monitoring their retirement accounts or really
falling asleep on the job, depending on who you ask.
Many 401(k) investors are following the
common wisdom of harnessing higher-risk investments
earlier in their careers and transitioning to less risky
options as they get closer to retirement, according
to a recent study by the Employee Benefit Research Institute.
"What's interesting to note is how
differently individuals in these plans choose to allocate
their assets," says Dallas Salisbury, president
of the institute. "The actual numbers end up fitting
with what most advisers say people should be doing."
But another recent study showed that at
least some IRA holders were not rebalancing their portfolios
on a regular basis. When John Hancock Financial Services
surveyed account holders in 2004, more than half --
58 percent -- said they had a specific plan for their
asset mix, says Wayne Gates, the company's vice president
of fixed products. And 90 percent of that group said
they were at or near their target. But 59 percent of
those with a specific plan also admitted they had not
done anything to rebalance their portfolios in the past
When asked how much time each month they
spend monitoring their accounts, IRA holders averaged
about 35 to 40 minutes. And that's not nearly enough,
"The fact that they are investing
or saving is very, very important -- that's No. 1,"
he says. "But No. 2 is asset allocation and rebalancing."
Check your money
Part of the secret of saving for your own retirement
is getting into the habit of regularly looking after
your own financial interests.
Even if you have a portfolio of managed
mutual funds, you still want to check in every so often
and see what the fund manager is doing with it. Is the
fund manager trading stocks within the fund that are
costing you money? Or is the manager making decisions
that put your portfolio in a higher risk category than
Maria Scott, editor of the American Association
of Individual Investors Journal, 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."