How often should I check 401k?

If you have a 401(k) plan, you are responsible for managing your retirement savings. You must decide where to invest your money, rebalance your investments, or take money out of your 401(k). The responsibility of managing the 401(k) money can be intimidating to most investors, who might not know where to start.

Long-term investors can check their 401(k) once every 6 months or 12 months. If you set up your 401(k) account properly and pick the right investments, you may not need to check your 401(k) frequently. Instead,  you can check your 401(k) account once or twice a year to monitor how your 401(k) is performing. Some of the events that make it necessary to check 401(k) include a job change, changes in 401(k) plan, or an illness.

401(k) as a long-term investment

401(k) is a long-term investment that retirement savers use to stash away money for their retirement years. As long as the 401(k) plan is set up properly and you have created a diversified portfolio, you can let the 401(k) grow with minimal interference.

Some plans limit the number of transactions a participant can make within a given period to every 60 or 90 days or more. If an employee exceeds this limit, the plan administrator can place restrictions on a plan participant’s ability to make changes to the account.

Usually, the 401(k) plan or custodian bears the cost of trading activities, but some plans may pass the cost to plan participants. Where the plan allows active trading, it could incur excessive costs that could erode the plan’s revenue. However, in a brokerage account, the account holder bears the cost of trading, hence making it ideal for active traders.

Monitoring your 401(k) investments

A 401(k) plan is a long-term investment, and you can let the investments grow on their own with minimal human intervention. As long as you have set up the investments properly, you may only need to check your 401(k) every six months or once a year.

Since most plans restrict how often you can change your 401(k), you can monitor the account without taking any action. You can check your account to know when it is a good time to make changes to the account.

When monitoring your account, evaluate your risk exposure. Taking too many risks could jeorpadize your retirement goals, and you should maintain a healthy level of risk. Also, check if your portfolio is well-diversified and if you have the right investment ratio.  

Certain life situations like a job loss and inheriting a 401(k) make it necessary to check the 401(k) and determine if you need to take any action. 

How often to check 401(k) when nearing retirement age

As you approach the retirement age, you need to pay more attention to your 401(k) plan. Since you will need the money sooner if you decide to retire when you reach the retirement age, you should check the 401(k) more regularly to make sure your investment profile is aligned with your retirement goals.

While it may be overwhelming to check the 401(k) plan every week, you should check your 401(k) at least every few months to monitor the performance of your 401(k). As you get older, you should move from an aggressive approach to a conservative approach to safeguard your retirement money.

Common reasons why you should check your 401(k)

Here are common reasons why you should check your 401(k) investments more frequently:

Plan changes

Plan sponsors may make frequent changes to the plan, which can affect plan participants directly. Some of the common changes may include the addition of new investment options, changes in expense ratio, changes to 401(k) loans, institution changes, etc.

When such changes occur, investors should adjust their 401(k)s accordingly to take advantage of new opportunities or change investment options. If you take several years to check your 401(k), you could miss out on opportunities to lower investment costs or boost your investment earnings.

Job change

When you switch jobs, you must decide what to do with your old 401(k) plan. You may decide to leave it with the former employer, cash out, or rollover to an IRA or new employer's 401(k). If you rollover the 401(k) to your new employer’s 401(k), you may need to check your investment profile to decide whether to adjust your investment allocation  

Rebalancing investments

As the market moves up and down, your portfolio will change and move away from the recommended portfolio. You should keep an eye on your 401(k) to determine how it affected your investment allocation.  If the portfolio has changed or the plan has added new investments, you can rebalance and reallocate your investments to match your retirement goals and risk profile.

Sickness

If you have been diagnosed with an illness, it might come as a surprise to you. Long-term and chronic illnesses are expensive to treat, and this means you might need money in the future to meet treatment and medication costs. You will need to adjust your investments accordingly to reflect the new life event. You can also take an early withdrawal to pay qualified medical expenses, and you may be exempted from paying the 10% early withdrawal penalty.