Better Financial Health in 15 Minutes (or less!)

The Two-Step Tango Of Smarter 401Ks

• Stacey Hyde

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Your 401 might look fine at a glance, but the details can quietly reshape your risk and returns. We dig into how to read what you actually own, why two target date funds with the same year can behave very differently, and the real cost of fees that compound against you. From checking equity exposure to comparing expense ratios, we share practical ways to tighten your plan without adding complexity.

We walk through diversification that goes beyond the S&P 500, including international and bonds that can cushion shocks and capture leadership shifts. You’ll hear why a once-a-year rebalance helps keep risk steady, how to spot duplicate funds that do the same job, and when index options can deliver similar exposure at a fraction of the cost. If you use model portfolios, we explain the difference between fee-based managed options and no-additional-cost models, plus the gotcha that can reset your choices during the next scheduled rebalance.

Most importantly, we break down the “two-step tango” for fixing allocations: change both your future contributions and your existing balance so your risk level matches your plan today. That single move prevents drift, aligns your portfolio with your goals, and makes every paycheck work harder. Before you log out, consider a small bump to your contribution rate to harness compounding and employer matches. If this helped clarify your 401, follow the show, share it with a friend who needs a checkup, and leave a quick review so others can find it.

Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis, TN 38137. (901) 422-7526. This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.

SPEAKER_00:

Hi, I'm Stacy Hyde, and I'm back with another episode of Better Financial Health in 15 Minutes or Less. And today I want to talk very specifically about 401 allocations, how to change your 401 allocation, what that means, and some tips and tricks that we often see people either neglect or mess up or things of that nature. So it is important to periodically look to see what your 401 is invested in. And so if you go to your balances, you'll see how much you have in each fund. And you may be in a target date fund, and that may be a great option. But if you are in a target date fund and you're over 40 years old, you really need to take a deeper dive into that target date to make sure that it still meets your risk tolerance. Because even though a fund may be called a 2045 target date, the range in equity exposure within those can vary incredibly widely. So for example, one 2045 target date fund might have 90% in stocks, and another might have 70%. And it depends on your individual risk tolerance whether either of those works for you. So it's important that you actually look under the hood there. You also want to look at the expense ratio. Lower is better, and really for a target date fund, the expense ratio should be below 0.5%. And if it's an index-based, meaning you see things like growth index or international index in there, it really should be below 0.25%. So you want to look take a look at that, and that's important. If you are choosing your own investments, you want to go and look and make sure that you have not been managing your portfolio in the rear view mirror. So many people, when we look at their accounts, we'll see that they have a lot of their money, maybe even all their money, in an SP 500 index. It is hard to argue with how good the performance has been over the last decade. But actually, this year, international stocks have outperformed U.S. And I think it's important to stay diversified, to spread out your money, both in large company US stocks, mid-sized small companies, international and mortgaging markets, and then some fixed income, some bonds. And so you want to make sure that it's still in line with what you had originally selected. A quick way to do this, and this is where we really see people making mistakes, is they go in and they change their future contributions to an updated model. So maybe they've decided that they only want to have 60% in stocks now. They'll go and they'll do that with their future money, but they forget to go and rebalance their existing money. So yes, they're putting their future money in more conservatively, but their half a million dollars or million dollar account balance is still way more aggressive than what they've decided their new risk tolerance is. The reverse is also true. People will go in and rebalance their existing, maybe they've gotten out of a fund that's not performing well, or depending on the plan, one that kind of duplicates itself. You know, for example, if you have Fidelity Magellan and Fidelity Contra, those two funds are very, very similar. There's really no need to invest in both. So they may have gone in and rebalanced to just choose one of those funds, but they forgot to also change future contributions. So if you're trying to update your allocation, it's really, really important that you change both. The other thing to be on the lookout for, and this does not apply to every plan, some plans have modeled portfolios available. And there's two different ways that that can happen. Some plans have managed portfolios where you pay a fee and there's an outside investment advisor that handles those portfolios. Many times it's like Morningstar or something like that, and there's a fee for those portfolios. Make sure you understand exactly what the fees are. Some of them are very reasonable, some of them are kind of expensive. So make sure that you understand what you're paying for that service, and that it's worthwhile to you. Um, and if it's something that maybe you're if you're working with an advisor, maybe they could help you and you could save that little bit of money on it. Um, but look at that, see what you're paying. And then in some other cases, it may be model portfolios that are managed by the plans advisor, and there is no additional fee for those. But it's still important to make sure that maybe you've started out in the aggressive portfolio, but now you're in your middle 50s and you're looking toward retirement, and you're thinking, I'm not so sure I want to stay that aggressive because my 401k is a million dollars now, and if I lose um 30%, that drops me back down to$700,000, and I would just lose my mind. Well, in that case, you need to be more conservative, so you should go in and update um your model portfolio. Um, depends on how the 401k record keeper works. Some of them will actually allow you to go in and you can change your investments to be different than the model portfolio, but unless you cancel the model portfolio the next time it goes for a rebalance, you're going to go right back into it. So make sure that you go in if you're in a model portfolio, that you go in and you select a new one and let it update that day so that you stay in the mix that you want. So the key takeaways are one, at least once a year. This is a good time of year to do it. Look at your 401k. Markets have been good this year. Um, been kind of bumpy, been up and down, but overall up very strongly, both uh domestic, international, and fixed income, which is pretty unusual that all three have done well. So it's a good time to look to see what you have, rebalance, you know, sell some of your winners, maybe buy some places where you're underallocated. For most people, that's international and also fixed income, maybe some value companies. And also make sure that your future contributions reflect what you want to have, and also your existing contributions. So there you change future contributions and you also rebalance. You I call it the two-step tango, and you need to make sure you do both. If you have any questions, you can shoot us an email at info at envisionfptn.com. We'll try to get those answered for you. But it is something that we feel like that everyone should take a look at their 401k at least once a year. And while you're in there, maybe increase your contribution a little bit. That always helps as well. Thanks for tuning in. This has been another episode of Better Financial Health in 15 minutes or less.