11 May Fees and rebalancing your 401(k)

Q. I’ve heard advisors say you should rebalance monthly. My 401(k) has limitations on making changes. What should I do? Also, are there broker charges for changing investments in my 401(k)?
— Investor

A. We’re glad your concerned about the fees in your 401(k) plan. Any and all fees take a bite out of your savings, leaving less money in your account to compound over time.

More than 90 percent of the return on any account is attributed to the asset allocation, said Jody D’Agostini, a certified financial planner with AXA Advisors/The Falcon Financial Group in Morristown.

“[Your allocation] should be based on when you expect to retire, the amount of risk you are able to handle and your retirement savings goal,” she said.

D’Agostini said rebalancing is very important so you don’t take on more or less risk than you intended, and it will keep you on track for a healthy retirement.

She recommends you start with a risk tolerance questionnaire to assess where you stand, then take the test periodically take your pulse and see if it’s changed.

Generally, it’s recommended to be more aggressive with a larger percentage of equities when you are young, and shifting to a more conservative allocation as you near retirement, she said.

There are two different thoughts on when to rebalance.

First, D’Agostini said, you can make changes when your allocation drifts by a certain percentage from what was originally intended, for example, 5 or 10 percent from your goal allocation.

This requires close monitoring and may be more difficult, she said.

An easier approach would be to rebalance semi-annually or annually, but at the same time each year.

“Frequent rebalancing doesn’t significantly reduce your account risk or return, so I would recommend that you rebalance annually near the end of the calendar year,” she said. “Rebalancing gives investors the chance to sell high and buy low.”

To answer your second question about trading fees in your account, D’Agostini said the Department of Labor has a 401(k) fee disclosure rule that went into effect in July 2012.

“Your plan administrator has to send you a quarterly statement showing the related fees and expenses, including amounts used to cover administrative costs,” she said. “You might want to look here to see what is being charged in your plan, as the plan document for each 401(k) plan is specific to that plan.”

Email your questions to .

This story was first published in May 2017.