Remember the popular ad campaign that ended each of its commercials with the question, “What’s in your wallet?”
How could you not?! It was run like clockwork on every network at all times of the day.
But as often as you saw the commercials and perhaps even considered the contents of your wallet, chances are you probably overlooked a much more consequential question than credit card rewards.
The question of: What’s in your 401(k)?
In over twenty years of educating people on their investments, it’s become very apparent to me that most people have absolutely no idea what they’re invested in or why – and that’s precisely why their investments so often disappoint!
Keep in mind, these are highly intelligent people — much like yourself — who understand the importance of prudent money management.
The problem is, they’re lazy!
Lazy because month after month they’ve funneled money into a mutual fund, ETF, or the like, just because somebody said so. What’s worse, they’ve done so with very limited knowledge of exactly WHAT it is they’re invested in or WHY.
This is your life savings we’re talking about! Don’t you think, at a minimum, you should be able to answer those two questions?
We certainly do!
Here’s the thing: we can’t give you the answers. But what we can do, is point you in the right direction.
To get started, go ahead and grab a copy of your most recent brokerage statement (ex: 401(k) or IRA) and have it with you as you read through this post. This will be an important part of the exercise as we walk you through the first in a series of important questions that you’ll need to ask about your portfolio.
Without further ado, let’s jump right in.
What are you invested in?
With your statement in hand, let’s take a look at your single largest investment.
Is the majority of your portfolio sitting in cash? An old employer’s individual stock? A mutual fund? How big is it — in dollars and percentage? How did you come about owning it?
Keep in mind there is no right or wrong answer here. Instead, this part of the exercise is designed to bring clarity to what your hard earned money is being invested in.
Why are you invested in it?
While still looking at the single largest holding in your portfolio, start thinking about why you’re invested in that way.
We asked a question in the previous section about how you came about owning your largest holding. An appropriate follow-up question is: why did you choose that fund/stock/etc. in particular?
Really take your time answering this, as this self-reflection will go a long way in helping you gain not just a better understanding of your investments, but also help determine if that path is one on which you should continue.
For the first post in this series, this is probably a good stopping point. But remember, this was just the start of our conversation and there is plenty more to cover. Stay tuned to the blog where we will resume the conversation by taking a closer look at the costs, composition, and performance of your portfolio in upcoming posts.
In the meantime, if you have financial questions or would just like a second opinion, we should talk! Click here to schedule some time to discuss your unique situation and see if Fox Financial is a good fit.