How often should I check my 401(k)? Sarah Newcomb, founder of Thrive Financial Empowerment Center, and David Blanchett, Head of Retirement Research at PGIM DC Solutions, joined Yahoo Finance Live to discuss 401(k) Explain why checking your (k) savings frequently is actually “checking against your goals”.
video transcript
[AUDIO LOGO]
– Well, stocks are back in bull market territory. That’s why many people rush to check their 401(k) balances. But the next guest says it’s the wrong thing to do. Joining us today are Sarah Newcomb, Founder of the Thrive Financial Empowerment Center, and David Blanchett, Head of PGIM Retirement Research.
Let’s get straight to the point. What’s wrong with that? First Sarah, then David.
Sarah Newcombe: yes. In other words, they tell you not to check your balance when the market is going down. I’m telling them not to check their balances when they get up. You would think I would say never look. It’s not that checking your balance is bad, it’s just that checking your balance frequently can put you at risk of making emotional decisions.
Because the more often you check, the more deeply you feel the ups and downs of the market. And we know that it just puts you on an emotional roller coaster, and it’s not a good ending for most investors.
– Well, you don’t necessarily have to follow your emotions here. Look at your timeline. David, my question is, if you don’t make a sudden reaction, it may be time to shift that portfolio a bit.
David Blanchett: Maybe so. I think Sarah’s point is very useful when you can’t control market trends. So focus on what you can control: how much you can save for retirement. And now, we are in a unique environment where the market is quite sluggish. We are getting very attractive returns on bonds and cash.
Therefore, it is generally not recommended to check your balance regularly. At this point, if you’re on track to retire on good terms, it might make sense to actually take action.
Now, once again, take a deep breath and try not to make big changes. But if you’re well on your way to achieving your goals—your retirement goals—it might not be a bad idea to take some risk off the table.
– Sarah, I have a question. OK, so the previous point about not checking bad conditions and not checking good conditions applies. So I am one of those people who has sinned when things were good. I used to check when I was sick, but now I have stopped doing that. I like to check When should I check my balance?
Sarah Newcombe: yes. I mean, I’m with you. I also like to check However, I will check back regularly when I know that I have contributed. By doing so, you are strengthening your savings habits. I reward myself by watching my balance grow.
I think the risk with checking during a bull market is that you lock your expectations in peak estimates of asset values, making normal times actually feel like losses.
Because if you check in at peak times and then feel like things are back to normal, instead of feeling like things have gone down a little bit, you feel as if you’ve lost money. I mean, I think the biggest emotional risk to checking out on your really best performing day is sticking to that top dollar amount.
But it’s nice to reward yourself for saving. Realistically, you probably won’t need to check it a few times a year, or quarterly at most. If you’re investing for the long term, you don’t need to check every few weeks.
– Well, Sarah, good point about fixing expectations here. That’s what many think, especially for the name of a technology that has seen such rapid growth during the pandemic. David, you’ve pointed out the potential, but of course this is all dependent on your timeline and shouldn’t be considered a risk at this time. What is that strategy?
David Blanchett: Well, again, I usually don’t like the idea of market timing. I’m not actively suggesting it. But now, if you have money in cash, you can earn 5% without doing anything, so I think we are in a really special environment.
So if you’re someone who’s extraordinarily obsessed about retirement, and you’re checking frequently and you’re going through the ups and downs of taking money off the table, there’s usually a big problem with the costs out there. Yes, that’s right. Usually, no cash is returned, or only 1% or 2% is returned.
Well, if you feel like you’ve reached your comfort zone, things can change at any time. If you invest in the market, the market will go down. In 2022 we will know. I think it’s worth asking yourself today. Hey, have I progressed far enough? Am I close enough to the goal that transferring funds to cash and high yield bonds actually makes sense?
Again, I’m not suggesting market timing, I’m suggesting that you consider your situation and what’s attractive now.
– David, I would like to ask you something. That is, it does not imply market timing. But the continuation would be how to stop people from getting off in the middle of a roller coaster.
David Blanchett: Well, again, in the same way that I’m suggesting this timing decision based on the overall financial situation, not where the market is headed. I think we’ve already done a lot in terms of things like 401(k) plans and target date funds.
I think you have to understand that a lot of what happens in the market is noise and signal. Markets go up, markets go down. I think the key is to delegate the account to a professional manager. And like Sarah said, check in once a quarter instead of once a month and leave it alone. The best thing you can do after retirement is to continue to invest regularly.
– Sarah, quickly, at a time like this, what’s the biggest question you’re getting right now?
Sarah Newcombe: Well, I really like what David talks about in terms of checks against goals. Because whatever the question is, regardless of market performance, the underlying question is, “Will I be okay?” Enough? do you have enough?
And if you’ve worked with an expert to plan and plan where you need to be now to be on track for retirement, you can check your balance against that benchmark. can. And we’re not benchmarking the S&P 500 results.
I think you should always ask yourself when you look at your balance, what are you comparing it to? yesterday? last week? where should i be?
So if you’re looking where you should be and you’re well above it, yes you’re ahead of your target. Now may be a good time to lower the risk and take advantage of some of those gains. Still, if what you always come back to is a frequent check, the needs you may be meeting may rather be control needs, in which case market movements is useless to check . meet that need. Focus on things you can control, like cash accounts.
– Sarah, you haven’t quite convinced me yet. I’m still guilty of checking too much. I’m sorry, but it’s just that as you grow up and things change, it becomes harder to go against certain emotional psyches. So you see this in your trading activity as well. FOMO trading and things like that.
Need to pin the conversation for now. Maybe I can have a chat that you can convince me. I’m sure there are other people who need more persuasion. But thanks for your insight, great advice. Sarah Newcombe and David Blanchett, thank you for joining us today.
