Retirement planning is an essential component of long-term financial security and independence. If you want a solid 401(k) retirement plan, then you’ll have to create a strong and diverse portfolio. In this article, we will help you understand all the important elements of creating an excellent 401(k) retirement plan portfolio. Keep reading below to learn!

When you build your 401(k) portfolio, you need to consider the following factors:

1.      Your Financial Goal

According to Bill Schantz, your portfolio must reflect your financial goals. For instance, if you want better returns, it should have more investments in stock funds.Along with choosing the best fund with the lowest cost, you should also determine how much to invest in funds as per your financial situation and long-term goals.

2.      Diversifying Your Portfolio

If you have a diverse portfolio, you’re more likely to minimize risks and increase your returns over the long-term. Diversifying your portfolio is an essential factor because you can reduce the risks by not investing everything in one kind of asset. To do that, you should allocate your money to large stocks along with medium and small-cap stocks. Although stocks fluctuate much more than bonds, bonds have a more stabilizing impact on your portfolio and provide income reliably. Therefore, you must balance the risk by investing in different funds.

3.      Risk Assessment 

Bill Schantz suggests, take risks moderately and manage them in a way that helps your portfolio grow instead of stressing you out. If you’re not experienced in investing, then a few plans offer suggested allocations after asking you a series of questions based on risk tolerance.

4.      Your time frame

If you have a lot of time until retirement, then you’ll have more freedom to take risks and generate returns. The type of portfolio you can invest in largely depends on the time you have. For example, if you’re a person in your 20s or 30s, then you could allocate much of your investments to stocks. However, if you only have a few years left until retirement, then its more favorable to not rely on stocks to minimize risk and increase reliability.

Final Thoughts

Once your investment allocation has been set up, you won’t have to do much except an annual review. However, if you’re building your own portfolio, then you’ll have to rebalance on a regular basis to keep it on track for your desired results.

Funds that are managed passively, like index funds, usually outperform most of the funds that are actively managed. Passively managed funds are also relatively cheaper. For  more information, visit Bill Schantz blog.