Charles Schwab Offers Process for Conducting a Mid-Year 401(k) Checkup

Wednesday, June 16, 2010 5:30 am PDT



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"Highest in Investor Satisfaction with Self-Directed Services"

SAN FRANCISCO--(BUSINESS WIRE)--Recent market volatility has caused many 401(k) investors to wonder if their retirement savings are on track. Charles Schwab, a 401(k) service provider to approximately 1.5 million company retirement plan participants, is encouraging people to perform a mid-year review of their 401(k) plan investments, and has outlined a simple process to help guide these reviews.

“The halfway point for the year provides a good opportunity for 401(k) investors to assess their retirement savings plan, especially given the market turbulence we have experienced of late,” said Catherine Golladay, Charles Schwab vice president of 401(k) education and advice. “It’s important to periodically check that your risk exposure, savings rate and plan investments continue to be in line with your overall retirement savings plan and goals.”

Golladay recommends 401(k) investors follow the four “R’s” when conducting their mid-year 401(k) check-up:

  • Rebalance: Once you have established an asset allocation strategy for your 401(k) portfolio based on your retirement savings goals and time until retirement, review your account every so often to make sure allocations match their original targets. This can be particularly important if the stock market significantly rises or falls. For example, an investor with 60 percent of his assets in mutual funds that invest in stocks and 40 percent of his assets in mutual funds that invest in bonds will likely see the proportion of assets he has in stocks increase if the market were to increase 20 percent, making it a riskier account than it was originally designed to be.
401(k) investors can manually rebalance themselves or investigate whether their plan includes features that do it automatically, such as an automatic rebalancing tool or an appropriate target date retirement fund.
  • Risk: Determining the level of risk you're comfortable with can be difficult and is often most clearly revealed during times of market tumult. According to Golladay, “If you can't sleep at night because you're worrying about your investments, then you're probably taking on too much risk.”
But determining the right level of risk for a 401(k) portfolio shouldn't be solely driven by whether big swings in the value of your portfolio disturb your rest; your capacity for risk matters as well. Golladay adds, “Younger investors generally can afford to be more aggressive and take on more risk, because they have a bigger window of time to make up shorter term losses.”
  • Review: 401(k) investors should also review the amount they are contributing into their plan, especially if they made the decision to lower their contribution rate or stopped contributing to their plan altogether over the past few years. “A good rule of thumb is to try saving at least enough to get the full benefit of any matching contribution your employer might make,” notes Golladay.

Annual salary increases or raises also present a good opportunity to boost 401(k) savings, because it gives you the opportunity to take home some of the additional income today while also putting additional savings away for your golden years. And many 401(k) plans allow people age 50 and older to make “catch-up” contributions. In 2010, 401(k) investors eligible to make “catch-up” contributions can save up to an additional $5,500 above the standard limit of $16,500.

  • Repeat: Staying invested and continuing to boost the amount you save is key to achieving your retirement savings goals, despite market ups and downs. “Remember, time in the market is more important than timing the market, and dipping in and out of a 401(k) is never a good strategy,” Golladay notes.
For example, during 2009, missing the best 10 days of the S&P 500 (that’s 10 days out of 252 trading days) would have reduced your annual return from 26.5% to negative 17.5%. Missing the best 20 days would have pushed your annual return down to negative 38.4%.* Treat your 401(k) like a lockbox, to be opened only when you reach retirement, and resist the urge to withdraw from the account when times are tough.

*Source: Schwab Center for Financial Research with data provided by Standard and Poor’s. Return data is annualized based on 252 trading days within a calendar year. The year begins on the first trading day in January and ends on the last trading day of December, and daily total returns were used. Returns assume reinvestment of dividends. When out of the market, cash is not invested. Market returns are represented by the S&P 500 Index which represents an index of widely traded stocks. Top days are defined as the best performing days of the S&P 500 during 2009. Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly. Past performance is no indication of future results.

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of financial services, with more than 300 offices and 7.9 million client brokerage accounts, 1.5 million corporate retirement plan participants, 794,000 banking accounts, and $1.4 trillion in client assets as of May 31, 2010. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Named "Highest in Investor Satisfaction with Self-Directed Services" by J.D. Power and Associates in 2009, its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC,, and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender) provides banking and mortgage services and products. More information is available at (0610-3674)

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Charles Schwab
Michael Cianfrocca, 415-667-0344
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Eric Hazard, 212-754-5610

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Schwab Center for Financial Research: Time in the market is more important than timing the market (Graphic: Business Wire)

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