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One of the most significant improvements on 403(b) plans is the requirement that employee/participants have several choices on where to invest their individual accounts. The downside is that many people don’t feel qualified to evaluate the merits of their investment options and need professional guidance. Districts would be well served to offer the services of expert, trustworthy advisors. Meanwhile, here are some important considerations for assessing retirement plan options:

Think Conservative The old rule of thumb was that the closer you were to retirement age, the more diversified and conservative your investment strategy should be. Those who were just starting their careers could have a higher risk tolerance because they had time on their side. But now, even new investors are saying that they don’t have the stomach for a roller coaster ride. Like their parents, they are more concerned about the return of their money rather than the return on their money.

Asset Allocation Replaced by Asset Class Correlation Diversification/ asset allocation has always been the cornerstone of investment strategies, but when both stocks and bonds weakened simultaneously, unlike the inverse or see-saw effect we’ve seen historically, investors demanded greater protection. What changed? Our globalized economy and the vast number of multinational companies who do business both in the U.S. and overseas. When there is a market drop, foreign and domestic stock decline together.

* Financial solvency of the company
* Performance history and track record not just over the past year, but a three-to five year average that spans a variety of market conditions
* Risk ratings
* Annual fees and service charges
* Reporting methods- frequency and access to available updates

How do you gather this intelligence? There are a number of ways:

o Attend financial fairs and seminars sponsored by plan sponsors

o Meet personally with representatives of the companies and ask them to design a custom plan for you based on your age, financial goals and risk tolerance

o Ask them what tools they provide so  that you can continually review and evaluate the performance of their investments so that you can make timely adjustments based on market conditions

o Work with a financial advisor who can guide you, rather than relying on friends and colleagues to help you choose based on their decisions

o Take advantage of all of the on-line resources that offer investment analysis and  tools, such as www.marketwatch.com, Morningstar.com, cnbc.com,smartmoney.com, cnnfn.com, and yahoo.com

Although all of this may be new and confusing to participants, it is far better for them to be a partner in this process of making investment choices and understanding their plan benefits, rather than relying on administrators to make group decisions for all.

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Tags: 403(b), education savings, lee rosenberg, lee rosenberg cfp

About the Author: Lee Rosenberg is the Co-founder of ARS Financial Services, Inc. As a Certified Financial Planner with more than 34 years of solid financial expertise. Lee is a registered representative of Cadaret, Grant & Co., Inc. He was also named one of the top 25 Independent Financial Advisers in the US by Rep magazine.

This entry was posted on Wednesday, September 9th, 2009 at 8:33 am and is filed under 403(b). You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.