401k Asset Allocation Napkin

The Importance of Asset Allocation in Your Portfolio

Asset allocation refers to the spread of investments across a mixture of assets including stocks, bonds, cash or marketable securities, securities that can quickly be liquidated to cash when necessary. Gains in investments have the potential for additional optimal growth when they are housed in fruitful environments. However, the stock market can be temperamental and investments may thrive for a certain amount of time then flatline due to unforeseen circumstances. The process of switching funds to alternate locations is called rebalancing, which lives under the same roof as asset allocation.   

Proper asset allocation cannot be taken too lightly, especially for those who start a company sponsored retirement plan, and then subsequently neglect it. It is all too often employees or clients are unaware they can adjust their portfolios depending on their investment goals or future needs. Simply being enrolled in a plan does not necessarily mean your investments are being propelled to their full potential; which may be due to poor communication from the third party administrator urging employees to enroll without describing the true benefits or options of a retirement plan. 

Understanding how to properly allocate funds in a retirement plan is a fundamental pointer which financial institutions and plan holders might not often utilize. Years could pass and a lack of guidance could lead to devastating losses to a retirement plan, and absolutely no one would be aware of it unless they are given the proper tools and education on allocation and rebalancing. 

Understand Your Risk Tolerance Level

There are multiple risk levels in relation to the investment choices offered. They can most commonly be broken down to: aggressive, moderate and conservative. Throughout a plan holder’s life, their risk tolerance may go through multiple transitions depending on the status of the market and their ambitions. Younger investors tend to be more aggressive because they have more time to handle the peaks and valleys of gains and losses. An older investor may fall into a less aggressive category to maintain steadiness behind their funds. This strategy is similar to a target date fund, but is not to be confused with one. 

Those enrolled in company sponsored retirement plans should have agency over how their funds are distributed, or rebalanced after each quarter. Other factors become involved as well; age, timeline, risk tolerance levels. No, the 401(k) Optimizer® cannot foretell the future, but what it can do is act as a guide for personalized allocations aimed at meeting your goals. The platform acts as a doorway to potentially steadier gains through compounding. If you have a financial advisor, this is a great add on to bounce ideas around and answer questions related to your long term financial goals while keeping your risk tolerance in mind.  

Why Aren’t We Reallocating?

Oftentimes there is one basic plan offered through the employer. Then, an employer sometimes matches contributions, and the employee trusts the recommendations of a TPA (Third Party Administrator). However, financial jargon that is common in the industry may leave newer participants scratching their heads. A study conducted by ValuePenguin concluded around 63% of Americans did not have a full understanding of retirement savings vehicles. With a percentage that high, those who participate in a retirement plan should utilize additional tools for rebalancing in order to experience the benefits associated. From older investors to young professionals entering the workforce, allocation should be considered at least twice a year

Use Tools Outside of Your Financial Institution 

Large institutions may be uncommunicative during market swings, which could leave a plan holder feeling confused and blindsided. If the market is suddenly strapped in for a wild roller coaster ride, investors may not be given a heads up. This is why we created downside protection and a stoploss tool, the HCM-BuyLine® over 20 years ago. It is continuously implemented today within the 401(k) Optimizer® platform. The HCM-BuyLine® is adjacent to your financial institution, and while unemotional, its goal is to keep investors on the right side of the market. If a plan holder is unaware of major changes in the market, funds they have gained over time could easily be chipped away or lost.

Remember to Keep the Balance

Maintaining balance in your portfolio can help your account benefit from market gains and mitigating losses. Communication can be rare for coordinating when and where funds and assets should be located depending on the status of the market. Retirement plans act as safety nets for an individual’s future, but only if they are tended to and prioritized on a regular basis. Proper asset allocation is always meant to act in an investor’s best interest, which is why financial tools like the 401(k) Optimizer® are a great method to maintain goals and protect your capital in a company sponsored plan. Subtle reminders can help protect investments and assets, which in turn help to distance retirement accounts from major loss or disappointment. 


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