Controlling the uncontrollable: Part III

#2 Asset Allocation

The marketplace for government 457b plans (or federal TSP) has evolved in the past twenty years.  It hasn’t evolved as quickly as the 401k world, but it is slowly playing catch up on some of the innovations in that marketplace.  The asset allocation process should be much easier than it was when I started.

Back in 1997, everyone was a stock picking pro until they weren’t.  Those painful lessons led to the modern day all in one fund.  Target Date funds where you simply select the year around when you will retire are now commonplace in workplace retirement plans.  For those with more complex financial lives, you may also have risk based models available to you.  The asset allocation process helps you to consistently buy into the market during both high times and low.

It also allows you to take on more risk when you are young and can afford those dips in the market and gets more conservative as you move through your career.  The one thing these products have done is help employees avoid some of the noise.  Now if you work with a financial planner who is looking at all of your investments (and spouse’s if that is the case) and offer guidance not only initially but ongoing, that can be a good approach as well to make sure all of your investments are working in unison.  Unfortunately, some folks still think there is a silver bullet out there.  Well meaning family and colleagues can sometimes steer you down the wrong path and the power of diversification is sometimes lost.  This is the second item that you have 100% control over in your 401k in addition to your savings rate so make sure you take advantage.