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If you're like me, you're 401k is a “set it and forget it” account. I know the money goes into the account every paycheck. But, I don't have the time or desire to watch the performance and make sure I don't pick the worst funds in my plan.
We all only get one shot at retirement. Your 401k can be like the doctor checking your blood pressure at your annual physical. If your 401k is your primary or only retirement fund, it might be worth getting a managed 401k.
What's an Ideal 401k Asset Allocation?
The best 401k portfolio is going to be different for each person. We all have different investment goals, investment horizons, and retirement expenses.
However, most investors will benefit from having index funds and dividends. This foundation provides a diversified portfolio that can have minimal risk. It can also earn recurring income, even when the stock market is in a bear market.
A portfolio analyzer can help suggest an ideal stock and bond asset allocation for your situation.
Why Should I Have My 401k Managed?
The sinking of the Titanic is probably the most infamous shipwreck in modern history. What you might not know is that disaster could have been averted 30 seconds to even one minute before the ship hit the iceberg.
While the Titanic crew didn't make the correct last-minute maneuver, you have plenty of time to steer your 401k to retirement safety.
If you don't feel comfortable being at the helm, having somebody else manage your 401k can be the smartest decision you make regarding retirement. But that doesn't mean you should trust your life savings with just any person.
Here are some reasons why I'm a fan of managed 401ks (and IRAs):
- You're “forced” to have a 401k to save for retirement
- But, you don't have any investing experience and have no desire to invest
- Don't have the time to manage your own 401k plan
- You want a managed 401k, but don't trust the brokerage
- Unsure if your 401k is properly diversified and you want a free 401k checkup
Even if you only have a managed 401k for a few months until you grow your sea legs, it doesn't hurt to have a second set of eyes on your portfolio. After all, we're talking about your retirement.
Paying for a managed account gets a bad rap in the world because it costs money.
But, sometimes it pays to spend money to make more money. This is one thing I wish I would have realized in my 20s instead of being a cheapskate.
If you're like me (a busy parent), you don't want to spend your free time managing investments. You eventually forget to do it and may have a seriously imbalanced portfolio.
How to Get a Managed 401k Plan
You have two different ways to have a managed 401k plan.
These options all take a different management approach and charge different management fees. Below is a brief summary of your three different options and you can choose which one is best for you.
What's great about these three options is that you can switch plans at any time. If you want a more hands-on approach you can notch up to another provider. Or, you can adopt a more laissez-faire management strategy too!
Let's be honest, you might have a lousy 401k plan provider and you want independent advice to make lemonade out of lemons.
This is where Blooom (not a typo) comes into the picture. Blooom is compatible with just about any 401k, government retirement plan and IRA.
They will look at your current 401k investment offerings and can provide a personalized portfolio for your investment goals.
During the free 401k analysis, Blooom will determine if you're investing too aggressively, conservatively, or just right.
Blooom will try to use the lowest-priced funds to optimize your portfolio performance, but since they are a fiduciary, they might invest in another more-expensive fund if it has a better investing strategy.
Although index funds and target-date funds can be an effective way to track the market with minimal fees, actively managed funds can play a role too.
Blooom currently offers three different pricing plans.
Remember, you get a free consultation so you can decide to say “No” if you don't think Blooom is for you.
Personalized Portfolio ($120/year)
The Personalized Portfolio tier costs $120 per year per account. You get a personalized portfolio but will have to rebalance your own portfolio.
Some of the plan perks from Blooom include:
- Research funds in your plan
- Choose optimal funds for your risk tolerance
- Minimize hidden investment fees
- Keep portfolio on track as target allocation shifts
- Can link unlimited retirement accounts
Advisor Access ($245/year)
The mid-tier Advisor Access subscription costs $245 per year.
In addition to a personalized portfolio, Blooom offers these perks:
- Place trades on your behalf
- Receive text message withdrawal alerts
- Advisor access by chat or email
Financial Consulting ($395/year)
The highest tier plan costs $395 per year. In addition to the Advisor Access tier features, you get priority advisor access via live chat.
What I Like About Blooom
- Free analysis
- They can manage your portfolio for you (regardless of your portfolio size)
- You can quit and do it yourself when you feel comfortable doing so
Your 401k Plan Provider
If your 401k plan provider offers advisory services, you can try this route as well. You keep the investing decisions “in-house.”
For example, Vanguard 401k plans offer a managed service called Vanguard Managed Account Program. This service automatically rebalances your portfolio to own a diversified basket of funds that match your investing goals.
Why You Might Use Your 401k Plan Provider
- Prefer to keep your management “in-house”
- Trust your 401k provider to make the right portfolio decisions
Personal Capital: Another Way to Manage Your Investments
This is a bonus recommendation since Personal Capital doesn't manage 401k plans. But, they will auto-invest your non-401k investing if you choose. And, you can also track your investment performance and compare fund fees for free.
If you're a DIY investor who has the discipline to rebalance your portfolio and switch assets when necessary, you can also give Personal Capital a whirl.
After entering your retirement plan information, Personal Capital provides a free report card and portfolio analysis. You can quickly see if your portfolio is well-diversified or if you can switch to different lower-cost funds.
I also like Personal Capital because you can monitor your other financial accounts all in one place too.
If you have your IRA or taxable investments with another brokerage, Personal Capital also provides an investment checkup on these accounts too. And, you can also monitor your savings accounts to track your total net worth too!
This tool can also help calculate your retirement income. The interactive calculator can help you estimate the minimum monthly contribution to achieve your retirement goals.
Are Managed 401k Accounts Worth It?
One advantage of managed 401k accounts is the ability to avoid “common 401k mistakes.”
Some of these mistakes include:
- Holding too much company stock
- Owning too many stock funds in relation to age (too aggressive)
- Young employees have too many bonds (too conservative)
- Owning expensive funds that underperform similar plan options
A managed 401k account can be well worth the money for these reasons:
- You know you need to invest and don't know how
- Don't have the time or desire to manage your portfolio
- Won't stick to the recommended target allocation even if you know you're too aggressive or conservative
- Want a second opinion (this is your retirement money after all and you can't take back time).
I'm a fan of managed 401k accounts if you don't want to take the time to do it yourself. Even if you only sign up for managed services for several months to straighten out your portfolio, you can still improve your income potential.
We all only get one shot at retirement so it's worth thinking about now instead of 10 years from now.
Have you used managed 401ks in the past? What was your experience?
Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.