How to Review (and Tweak!) Your Retirement Account in Just Ten Short Minutes  

You’re probably thinking, when reading the words “retirement account” above, that this is another article from a finance expert, telling you to do a lot of complicated things that will take hours and hours, just so you can maybe improve your financial situation.

No way!

Let me put it this way: you know when you’re at the grocery store and you see a huge, unwieldy head of broccoli in the produce section, and then right next to it you see broccoli that is already cut for you in a nice little box?

That’s what this is. This information is a nice little box of pre-cut broccoli. You could spend hours looking for this information — or chopping broccoli — or just read this.

Let’s get started.

How to Review Your Retirement Account In 10 Minutes

1. Check your expense ratios.  The expense ratio is the fee that you’re paying to the investment manager of the fund where you have put your money. The higher the fee, the less money you have in your pocket, so you want your fees to be as low as possible.

Takeaway #1: Look for funds that have an expense ratio of less than 0.25% per year.
Takeaway #2: Invest in Index Funds.

You’re throwing away thousands and thousands of dollars by investing in “mutual funds” when you could buy “index funds” that do the same thing. Even if your financial advisor tells you the high fee mutual fund they’re recommending to you is “extra special,” it’s probably not true. And they might be getting paid for you to invest in it.

So I know what you’re thinking: what’s an “index fund?”

2. Index Funds Explained. Here’s how to think of an index fund: imagine you had 1,000 dates in one year, and someone asked you to tell them how your dates went. You’d probably take a smaller sample set and base your answer off that, since you can’t remember all 1,000 dates and probably want to forget 50% of them (or maybe that’s just me!).

Anyway, back to business: the S&P 500 is an “index” consisting of 500 large US companies. But, like your “sample set” of dates, it’s supposed to represent the entire US stock market. An index fund mirrors the S&P 500 index; it’s a fund that holds all the same stocks that are in the S&P 500 (for example, Apple stock).

Another benefit of index funds, besides the fact that they are all-inclusive, is that they are cheaper than mutual funds because they are “passive.” Meaning, unlike mutual funds, they don’t have a team of people managing them, because they just mirror an index, so they cost less – a lot less! – to maintain.

I guarantee you, however, if you’re investing in a retirement account, it’s stacked with “mutual funds.”

Takeaway #3: Avoid mutual funds and look for index funds or ETFs (Exchange-Traded Funds, often commission-free) in your retirement plan. This will save you thousands and thousands of dollars in fees.

3. Keep an Eye on Your Allocation Plan — and Rebalance When Necessary. Say you set up your target allocation to be 80% stock index funds, with 20% bond index funds.

Over time, your initial allocations will get out of whack and will naturally drift away from what you had set up, so you’ll need to get them back in line to make sure you’re maximizing your portfolio returns.

Say your stock index funds are making money and your bond index funds are losing money —  your stock allocation will naturally grow larger than 80%, while your bond allocation will naturally shrink.

Asset allocation and fees are two very reliable predictors of how your investments will do (yes, less than the actual funds you choose).

Takeaway #4: Check your target allocations and compare them to your current allocations. All of this will be on your statement. Adjust your allocations to get them back to your planned targets, by either buying or selling stock/bond funds.

The reason why you rebalance is to make sure your asset allocation is right for your age. This was a HUGE issue for people going into the Great Recession of 2008: baby boomers had too much money in stocks because they never rebalanced out of stocks, and into bonds. Again, the reason why you rebalance is to make sure your asset allocation is absolutely on target and right for your particular stage of life.