Don’t fear a 401(k) re-enrollment notice, it’s a good thing

Personal Finance

“I’m supportive of this,” said certified financial planner Hans “John” Scheil, CEO and owner of Cardinal Retirement Planning in Cary, North Carolina. “The reality is that most people don’t have their 401(k)s properly allocated. And most don’t ever reassess where they stand.”

Most companies (62.1 percent) in the Callan study have done a re-enrollment when the fund lineup changes. Some companies (27.6 percent) also might use the process to address user errors every few years or so. That is, the advisor to the fund might discover that participants’ portfolios are full of poor investment choices. In that case, the process will result in those workers having a better-allocated default option or, at the very least, prod them to evaluate their previous choices.

In simple terms, the way your portfolio is allocated should be a reflection of your risk tolerance (how well you stomach market volatility) and your risk horizon (how long until you plan to use the money).

Although a retirement saver initially might consider those factors and arrive at, say, a mix of 90 percent stocks and 10 percent bonds and cash, over time that allocation can get out of whack if one category begins taking over more of your portfolio than intended.

Even within those two broad asset classes, as not all investments necessarily move in lockstep, your portfolio’s makeup can eventually no longer resemble your original strategy.

In addition, as time passes, an allocation that worked when you were in your 30s might no longer be appropriate as you near retirement.

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