If you have a 401(k) plan where you work, consider yourself fortunate, because your 401(k) offers you a great way to build resources for retirement. Your earnings grow on a tax-deferred basis, and your pre-tax contributions lower your annual tax bill. Plus, you’ve probably got a good choice of investment options.
But keep in mind that a 401(k) is largely a “self-managed” plan – so you’re the one that must keep track of what’s going on. As a 401(k) owner, you’re responsible for several things. First, you need to decide how much to contribute to your plan. Next, you’re in charge of picking your own investments from those available. And finally, you’ll need to periodically review your 401(k) holdings and make adjustments as needed, in response to changes in your life or changes to the investments themselves. In short, when it comes to managing your 401(k), you’ve got a lot of obligations.
Fortunately, you can get some help through an extremely useful tool – your 401(k) statement. Many people just look at their statements to check on their current balance. And, of course, it is important to know how much you’ve got. But don’t stop there – your statement is full of information that can prove helpful to you in running your 401(k).
Here are a few things to look for:
Account summaries – Here’s where you’ll find the beginning and ending balance of your individual accounts over the statement cycle. This section gives you a “snapshot” of how your investments performed over the past statement cycle – typically a quarter or a month.
Investment summary – In this section, you’ll find descriptions of how your individual holdings have done over time. Your statement may include annualized total returns over various time periods, such as one, three, five and 10 years. This long-term perspective can be valuable to you, especially if you’re concerned about a drop in your balance from last quarter’s – or last month’s – statement. While this past performance does not guarantee or predict future results, it can still give you an idea of how your accounts have done in various economic environments.
Asset allocation – Ultimately, your 401(k)’s ability to help you meet your retirement goals will largely depend on your asset allocation – the mix of investments you’ve chosen to fund your plan. Your statement should have some type of graphic representation – possibly in pie charts – showing you how your money is spread among the various options. Pay close attention to this picture, because it can change without you really being aware of it. For example, if one of your stock-based accounts has grown substantially over the years, your overall 401(k) portfolio may now be more heavily weighted toward growth stocks than you had originally intended. If that happens, you may need to rebalance.
Loan information – If you’ve taken out a loan from your 401(k), you’ll find all the key data here – how much you borrowed, what interest rate you’re paying and how much you’ve paid back.
By paying close attention to what’s on your statements, you’ll find it easier to successfully manage your 401(k) plan. So, the next time you get a statement, take a close look – and, if you need to, take action on what you see.
-This article is provided by Jeff Foster, the Edward Jones Investment Representative for Seymour, TN.

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