We probably all know someone with a natural gift for fixing what’s broken. If we don’t, we hit the Internet to find a handyman or, failing that, pick up a screwdriver and start the do-it-yourself (DIY) journey of home repair. Can such gumption and energy also work when you invest? Probably not, and here’s why.
DIY videos on the likes of such sites as YouTube or Home Depot make challenging projects look easy. Just a few online demonstrations inspired me to take on my bathroom renovation.
Big mistake.
Tasks may look simple; we all know things aren’t always what they appear. A home improvement contractor probably considers installation of a new vanity to be quite simple. A celebrity chef says “Bam!” and a sumptuous meal appears.
Both the contractor and chef perfected their craft over years. We might wish we could easily repair a broken sink or whip up a gourmet feast. In the back of our minds, we of course realize that craftsmanship is rarely straightforward or easy.
Likewise when investing for your retirement, which can feel simple. Log onto your 401(k) retirement plan and look at all the data and information. Where can you find the confidence to understand the numbers, let alone act on them?
You can simply check home projects off your list whether finished or not, choosing to live with little imperfections like uneven wallpaper or paint that’s a tone too bright. About your financial future, though, ask yourself this question: How do you even catch a mistake that’s deep in the details of your 401(k)?
Assume you do manage to find a mix-up. Does it hinge on returns relative to a specific benchmark? Do your asset allocations clash with events occurring in the financial world?
Unlike with wallpaper, you can’t put a 401(k) on autopilot. After you sign off on the initial money plan, you must also monitor it along the way.
Many investors do, with varying degrees of success and attention. USA Today recently reported, for instance, that 63% of workers with 401(k)s manage their own investments. Fidelity Investments found in a data analysis of 13 million participants nationwide that 54% of such folks take no active role in managing their 401(k) – swapping out no funds, making no updates to contributions’ investments and even seeking no planning guidance in at least two years.
“If 401(k) assets are not managed either by the individual or a professional, the account may be taking on too much or too little risk,” added Jim MacDonald, president of Workplace Investing at Fidelity. “And with market fluctuations over time, it may leave the individual short-changed by [retirement].”
Barring someone trapped under rubble or a kitchen stove ablaze, those findings are much scarier than any remodeling or cooking project gone askew. Even scarier: Most people never get around to a process for monitoring retirement investments or evaluating an investment management strategy.
Sure, most of us feel passionate about our hobbies and interests, so we invest time and money in them. In contrast, many of us pay slack attention to finances critical to our future because we lack a process for truly managing the accounts. If you don’t have an appetite for planning, find a professional seasoned in investing.
You can dump the pot or take the bathroom wall down again. You get one shot at saving for retirement.
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Joseph “Big Joe” Clark, CFP, is the managing partner of the Financial Enhancement Group LLC, an SEC Registered Investment Advisory firm in Indiana. He is the host of Consider This with Big Joe Clark, found on WQME and iTunes. Big Joe can be reached at bigjoe@yourlifeafterwork.com, or (765) 640-1524. Follow him on Twitter at @Big Joe Clark and on Facebook at http://www.facebook.com/FinancialEnhancementGroup.
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