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Take Advantage of Employee Financial Education |
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by Reprinted with permission of Investment Representative Celine Richardson of EdwardJones
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Friday, 11 January 2008 |
 In the old days, if you worked for a company, your retirement income would likely have been in the form of a pension, with the amount based on your income level and years of service. Apart from those factors, you had little control over the size of your pension benefits. That pension model is still around, but it's not as prevalent as it once was.
Today, many employers offer 401(k) plans, which give you the responsibility of choosing the right investment mix for your risk tolerance and retirement goals. Yet, along with their 401(k)s, many employers also provide some level of financial education - so you'll want to take full advantage of it.
As you peruse your company's financial
education program and materials, however, keep one thing in mind:
Your employer is not going to advise you on your investment decisions.
In some cases, an employer may provide you with access to a financial
advisor, but it's your decision as to whether to use this financial
advisor, find one on your own or make your own 401(k)-related investment
decisions independently.
Nonetheless, whichever route you
choose, you may find that your employees' financial education materials
can be helpful. Pay close attention to the following:
- Descriptions of investments - Your 401(k) plan might offer
a dozen or more investment options, including accounts made
up of stocks, bonds and money market instruments. You may also
be able to invest in your company stock. Study these investment
choices carefully as you put together your 401(k) portfolio,
and make sure you understand exactly the potential advantages
and disadvantages of each individual investment.
- Ideally, you'll want to diversify your holdings. While diversification,
by itself, can't guarantee investment success, it may be able
to help you reduce the effects of market volatility, which can
hit investors especially hard if all their investments are tied
up in just one type of asset. And, as you build and maintain
your 401(k) portfolio, be aware that most 401(k) participants
are probably not aggressive enough in their investment options,
putting too many dollars into fixed-income vehicles and too
few dollars into stock-based accounts. You will likely be investing
in your 401(k) for several decades - long enough to not get
caught up with the daily fluctuations of the market and give
yourself a chance for a "buy-and-hold" strategy to work.
- "Nuts and bolts" of your plan - 401(k) plans can vary quite
a bit in how they are administered and what services they offer,
so it pays to take some time to really understand how you plan
works. What fees, if any are involved in your 401(k)? How often
can you change your investment allocation? Can you reach live
customer representatives during working hours only, or are they
also available at night and on weekends? How often will you
get statements? Will you have access to a Web site that provides
customized information on your investments' performance? These
are the types of questions you'll want answered as you explore
your plan.
Your 401(k) can be an excellent
retirement-savings vehicle. Your earnings have the potential to
grow on a tax-deferred basis and your pre-tax contributions can
lower your annual taxable income. To get the maximum benefits from
your plan, however, you'll need to fully understand how it works
- so take a close look at those employee education materials.
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