How to Manage Your 401(k) Investments: DIY or Hire a Financial Professional?

By Sarah Carlson, CFP®, CLU®, ChFC®

Managing 401(k) investments is crucial to planning one's financial future. Two primary ways to manage investments are to do it yourself (DIY) or work with a financial professional. However, the decision ultimately depends upon comfort level, knowledge of investment strategies, and available time. Here is what investors must consider for each method—DIY or financial professional management—before deciding.

The DIY method

A DIY investor must watch the market trends and adjust their portfolio to manage returns while minimizing risks. This approach requires time commitment, patience, and emotional self-control to avoid making impulsive decisions during market fluctuations. In addition, a DIY investor must understand the following:

Investing principles
Stock market dynamics
The potential risk of each investment

Determining the DIY portfolio mix

Their goals
Time horizon
Risk tolerance
Correlation between investments
Fees
Tax situation

DIY isn't for everyone

A DIY approach may not be suitable for everyone. Understanding complex investment terminology and strategies requires a high degree of financial literacy. Furthermore, not everyone has the time to closely monitor their investment accounts, analyze market trends, and stay updated on changing federal regulations related to 401(k) retirement savings plans and other investments.

Financial professional management

On the other hand, hiring a financial professional to manage one's 401(k) can take a significant weight off one's shoulders. These professionals have the qualifications, experience, and skills to navigate investing. Investors engage with financial professionals because they:

Stay up to date with the latest financial market developments
Use sophisticated analytical tools
Provide personalized advice
Offer financial and retirement goals planning
Monitor individual investments
Monitor their clients' risk tolerance levels

When it comes to investing, we often let our emotions sway us. Financial professionals can help maintain objectivity in various situations, enabling them to make calculated and informed decisions about their investments.

Determining the portfolio mix

Financial Professionals determine their clients' portfolio mix through a rigorous and systematic process: understanding their clients' financial objectives, risk tolerance, investment horizon, and market conditions. Key to this process is aligning the clients' long-term financial goals with an appropriate asset allocation strategy.*

Financial professionals use a range of financial instruments and strategies, including equities, bonds, mutual funds, real estate investments, commodities, and derivatives, to work toward an appropriate portfolio mix. The selection of these investments must employ the principles of diversification and risk management to help manage returns while minimizing potential losses.**

Cost considerations

It's essential to understand that all investing comes with fees. The fee structures on each investment can vary from a percentage to a flat annual fee or a percentage of the total portfolio value, which affects investment returns. It is, therefore, crucial to weigh the cost of each against the potential benefits before deciding whether a DIY or professional management approach is appropriate for you.

In conclusion, deciding between managing a DIY 401(k) or hiring a financial professional depends entirely on one's circumstances. Remember that the goal is to grow your retirement savings efficiently and strategically, regardless of the method you decide on.

Transform Your Money-Fears into Money-Loves!

Unlock your patterns, gain clarity and focus, and become supremely confident with money using my simple 8-step approach to changing your financial future.

GET THE 8 STEPS TO FINANCIAL FREEDOM

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

*Asset allocation does not ensure a profit or protect against a loss. (34-LPL)

**There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)