#1 401(k) Mistake That May Cost More Income at Retirement

As an investor, the only thing guaranteed is changing market conditions.

So why would you invest your hard-earned savings into your 401(k) or other workplace retirement account and then forget about it?

After all, the investments you initially chose to help you meet your retirement goals–whether that was 20 years ago or 2 years ago–may no longer be the best alternatives for you now (especially with changing market conditions).

In the past, traditional investors have been told to follow a “buy and hold” strategy with 401(k) or other workplace retirement accounts. After all, retirement saving is a long-term game.

This buy and hold philosophy is the #1 mistake 401(k) account holders make…and a potentially costly one that may be doing more harm than good.

If you aren’t regularly rebalancing your account allocations, then keep reading for more information on what the heck rebalancing is, why it’s critical to your future retirement income, and what to do moving forward .

How Rebalancing Works

costly 401k mistake

Rebalancing is the process of realigning the weightings of the assets (your investments) in the portfolio. This can involve periodically buying and/or selling assets in the portfolio in order to maintain the initial desired level of asset allocation.

Maintaining an even distribution of assets–such as 50% stocks and 50% bonds–is also a key objective.

Therefore, a rebalancing of the portfolio may need to take place from time to time throughout each year.  

Let’s look at this example…

If your original asset allocation target was to have 50% stocks and 50% bonds, and the stocks performed well over a given period of time, then this may have increased the weighting of stocks to 60% or 70%–reducing the weighting of the bonds. In this case, in order to return to your initial target 50/50 weighting, you would need to sell off some of the stocks and purchase more bonds.

Rebalancing Is NOT the Same As Account Allocation

It’s important here to note that rebalancing is not the same thing as asset allocation, though the two can be related.

Account allocation is a type of investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in a portfolio, based on investment time frame, tolerance to risk, and overall goals and objectives.

In order to help investors grow their account, while at the same time keeping risk in check, an asset allocation strategy is often put in place.

Why It’s Vital You Rebalance Your 401(k)

Few people rebalance their 401(k) account, and even those who do, fail to manage risk through proper asset allocation. Rebalancing only the percentages of current holdings does not consider current market and economic conditions.

This often results in more significant losses during bad markets.

So, if you aren’t rebalancing your account allocations, you may be missing out on earning more and keeping more of your hard-earned retirement savings.

Unmanaged allocations may experience much larger losses in down markets and may miss the opportunity for growth during good markets.

Morningstar conducted a study that monitored the top 100 best-performing mutual funds between January 1, 1998, and December 31, 2013.

This study revealed that, in any given year of top best-performing 100 mutual funds in any of those years, in the next year, about half of the time, 8 out of 100 remained in the top 100 the very next year!

costly 401k mistake

Take a look at the chart below. This 18 year chart illustrates the potential better performance when properly rebalancing your 401(k) or other workplace retirement account on a quarterly basis with third-party help.

The gold line below represents the hypothetical account allocations using the “buy and hold” philosophy.   

The green line represents the potential increase in account performance using third-party advice and proper quarterly rebalancing.

To the right of the graph are the ending values of the initial investments of $100,000 shown in the green and gold lines.

The red box to the right shows the potential differences of assets in the account.

costly 401k mistake

Let’s dive a little deeper, and look at the Loss Exposure Profile. This graph shows how each account would have performed during down markets.

It’s clear that unmanaged allocations experienced much larger losses during these periods.

costly 401k mistake

To the right of the profile is the red box titled Maximum Drawdown. This represents the maximum percentage of loss experienced by each of these accounts–and the day it actually happened.

This shows the difference that third-party advice and proper quarterly rebalancing may have.


It’s not only important what you earn in return.

It’s also important what you keep that may have a big impact on future
account value and your ability to reach your retirement goals.

Click here for more expert advice. Download our guide that shows you how to Supercharge Your 401(k) performance.


401(k) Rebalancing Recommendations

At 401(k) Maneuver™, we recommend rebalancing your account allocations every quarter, or four times a year.

Rebalancing can take time and effort. This is why, throughout the years, many employer-sponsored retirement plans have touted the benefits of Life Cycle, or target date funds (2020, 2030, 2040 funds).

In fact, many companies resort to these types of funds as the “default” option simply based on a person’s retirement date.

But just because something is easy, it doesn’t mean that it’s the right option for everyone.

In fact, using a “standardized” portfolio allocation can actually be detrimental to investors. Individual investors should ideally have customized solutions that are based on their specific goals and risk tolerance.

Simply rebalancing to your original target percentages isn’t good enough.

Click here to download our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise.


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The Impact of Expert Guidance on Participant Savings and Investment Behaviors•: David Blanchett, Morningstar Investment Management Group, 2014.

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401(k) Maneuver is another business name for Royal Fund Management, LLC a SEC Registered Investment Adviser.

The Suggested 401(k) Maneuvers data illustrated in the chart on this page is created using back testing. Back testing involves a hypothetical reconstruction, based on past market data, of what the performance of a particular account would have been had the adviser been managing the account using a particular investment strategy. Performance results presented do not represent actual trading using client assets, but were achieved through retroactive application of a strategy that was designed with the benefit of hindsight. Back tested performance results have inherent limitations, particularly the fact that these results do not represent actual trading and may not reflect the impact that material economic and market factors might have placed on the adviser's decision-making if the adviser were actually managing the client's money.

These results should not be viewed as indicative of the adviser's skill and do not reflect the performance results that were achieved by any particular client. During this period, the adviser was not providing advice using this strategy and clients' results may be materially different. The strategy that gave rise to these back tested performance results is one that the adviser is now using in managing clients' accounts.

A client’s actual performance could also be materially different as a specific defined contribution plan investment menu may not have the same or similar investment menu options utilized by the adviser during back testing. The limitations of a defined contribution plan’s investment menu could result in materially different performance results.

CAGR is defined as Compound Annual Growth Rate. The Riskalyze Number is a calculation used to define the risk of a portfolio or the risk tolerance of a client compared to market indices. It determines mathematically the potential range of profit or loss with a probability of 95%. There can be no assurance that the portfolio does not lose more than the projected loss of the range of outcomes calculated.

Returns do not reflect the performance of any advisory client and reflects the reinvestment of dividends and capital gains. No current or prospective client should assume that the future performance of any specific investment or strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. There are no assurances that a client's portfolio will match or outperform any particular benchmark. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.

Projections are based on assumptions that may not come to pass. There is no guarantee or assurance that the projected or simulated results will be achieved or sustained. Actual results may be better or worse than the simulated scenarios. Trend indicators can shift precipitously in response to global events.

All third-party trademarks, including logos and icons, referenced in this website and our content, are the property of their respective owners. Unless otherwise indicated, the use of third-party trademarks herein does not imply or indicate any relationship, sponsorship, or endorsement between 401(k) Maneuver and the owners of those trademarks. Any reference inside this website or content to third-party trademarks is to identify the corresponding third-party goods and/or services.

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