401 (k) investments require adjustments over time

Aimee Picchi, Special in the United States TODAY & # 39; HUI

Posted at 05:01 AM on 3 June 2019

Alian Ollivierre said she had started investing very early, at just 16, after reading Robert T. Kiyosaki's "Rich Dad, Poor Dad" personal finance book. .

Curious about investing, she raised $ 90 in a mutual fund. Over the course of her career, she has devoted at least 20% of her income to investments such as real estate, stocks and bonds.

But Ollivierre, a 33-year-old business coach, explains that her investment style changed when she married last year. Now, she says, she avoids riskier investments, such as real estate projects that go to the basics. Her new goal, she says, is to create a generational wealth for the children that she and her husband hope to have someday.

A life event like a wedding "makes you think more collectively how it will affect the family," she says. "Before, I was more of a risk taker."

Ollivierre is not alone, according to investment experts. The main milestones such as marriage, the birth of a child or a job change often occur when investors take stock of their goals and change their investment style, says Heather Lord, head of strategy and innovation at the mutual fund company Capital Group.

"People tend to engage and change their investment strategies based on what's happening in their lives, period," Lord said.

A combination of behavioral science and demographics – such as the fact that people are living longer – can help investors re-evaluate their investment approaches at key moments. Below you will find three tips from investment experts.

Imagine your future

Investors aged 20 to 30 tend to take a more aggressive approach than older workers, but one of the biggest risks for young workers is simply not to save for retirement, said investment experts.

Although the rule of thumb is to save between 10% and 15% of pre-tax annual income, very few Americans stick to it, with a Bankrate.com survey revealing that only 26% of workers save more than 10% their income. Even worse, 21% say they do not save anything.

A simple behavioral technique – planning for retirement – may encourage workers to save 31% more on their income, according to a Capital Group study. The researchers found that women and women of Generation Y were even more likely to want to save more when they imagined living their golden years.

"Millennials have a lot of competing activities on their incomes," said Lord, from Capital Group. Because this adds to the challenge of saving for retirement, imagining retirement can help them make the habit of putting money aside. And women, who tend to live longer than men, may need their assets to be larger.

Reevaluate risk at key stages

As in the case of Ollivierre, investment experts recommend reassessing your investment style and risk tolerance at key stages to ensure you are on track for retirement or other investment objectives.

According to Scott Sparks, Wealth Management Advisor at Northwestern Mutual, while an investment approach is based on an individual's risk tolerance and goals, it's important to have a broader view of risk as you go. as you advance in your career.

"Make sure you do not neglect some risk management strategies, such as planning unforeseen problems," he says. That means making sure you're covered by disability insurance, life insurance and a will, he notes. In a study conducted in December, Transamerica found that more than half of retirees withdrew from their jobs before planning to do so, because of a loss of employment and job losses. health problems.

Sparks also stresses the importance of tax strategies, such as the use of the tax benefits of various investment instruments, such as health savings accounts and classic and Roth IRAs. These vehicles can help manage tax liabilities now and in retirement, an issue that workers should consider when they re-evaluate their investment styles at key times.

The new game of retirement

Today, fewer US workers have pension plans, with employers now moving to 401 (k) s and other defined contribution plans, says Dan Keady, chief financial planner at TIAA. At the same time, many workers can spend three or even four decades in retirement, compared to 10 or 15 years in previous generations.

"People see their parents without a detailed income plan and longevity contingency," says Keady. "The children of these people see first-hand the impact of not having these pension accounts."

This is why advisors are rethinking the conventional wisdom of adopting prudent investments such as bonds when workers are approaching retirement. Since bonds do not offer the same returns as in the 1970s and 1980s, they may not provide the income needed for retirements that last for decades.

Workers may want to consider investing in several compartments as retirement approaches, says Sparks of Northwestern Mutual. For example, some investors may create a portfolio they will not touch until age 80, allowing for a more aggressive investment strategy focused on the growth of these assets.

But investments to finance the early years of retirement are likely to be kept in more conservative investments to protect themselves from market volatility, adds Sparks.

Overall, expect to revisit your style and investment approach every three to five years or whenever you experience a major change in life, says Sparks. "Have a plan as soon as possible," he says. "The sooner the better, but it's never too late."

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