Does the RISK in your 401k align with your tolerance to risk?

A few weeks ago I made a post on LinkedIn about having a thorough review of your 401k completed (linkedin.com post). After reviewing a few new 401k plans, my clients and I both had a key realization:

Clients realized that their personal risk tolerance was not closely aligned with the risk in their current investment portfolio.
I realized that Target Date Retirement Funds or Age Based Retirement Funds are often more conservative than I believed them to be. For example, a very large, industry respected mutual fund company has a 2065 target date fund that includes 10% bonds in the fund. Having 10% bonds in your portfolio may be appropriate for some investors looking to retire in 2065, 45 years from now. However, 45 years is a long investment time frame and many investors risk tolerance may better align with a 100% equity portfolio.

I understand this 2065 fund is only one example, however, it begs the question:

Is a target date fund meeting your investment risk expectations?

Although Target Date Retirement Funds are often a great, simple investment solution for many investors, it is still recommended to review your investment options in detail and ultimately align your portfolio with your personal risk number.

To find out your risk number, send me a message through our Contact page, mention "risk number", and I will send you a risk questionnaire to help you determine your risk number.

Written by Kevin Sandieson, Financial Advisor and Partner at Fortress Planning Group