When Should You Check Your 401(k) Balance?

One of the basic rules of financial responsibility is to keep your account under control. You need to know your credit score, how much emergency money you have, and what your credit card balance is.

But in a 401(k) account, a certain amount of ignorance is bliss. CNBC Select spoke with behavioral economist Sarah Newcombe. Luciferon why checking this retirement account too often can have detrimental consequences.

Basically, when we review our investments during a downturn and find that our portfolio has suffered some level of loss in value, we panic and think we need to take action to protect our money. This often means selling some assets (possibly at a loss) and reinvesting the money when the market picks up again.

However, when you check your investments in a bull market and see your portfolio rising in value, you may mistakenly believe that your investments are doing well because you are good at picking stocks and other assets. “Overconfidence is a big problem for many of us because we love to take credit for ourselves when markets are up and blame external factors when markets are down,” explains Newcomb. “The danger of checking during peak hours is that you get cognitively fixed on that very high number, as if you had money in the bank. But if the market goes down tomorrow, you will feel like you have lost money.”

Too much focus on the ups and downs of the 401(k) can be counterproductive, but ignoring your retirement portfolio entirely isn’t what Newcomb recommends. Instead, she advises people to create meaningful benchmarks so they can better track whether their 401(k) is working as expected.

“Look at your situation compared to what you need now to reach your future goals,” she says.

To devise your own set of financial benchmarks, you need to know what financial goals you are working towards. It helps to work with a financial expert who can help you understand what your goals and benchmarks look like. Keep in mind that these benchmarks should be meaningful to you and your goals, but they should also be realistic. Below are some common retirement savings goals. fidelity When thinking about benchmarking, this might be a good place to start.

• Save your annual income by age 30
• Triple your income by age 40
• Six times your income by age 50
• Save 8 times your income by age 60
• Save 10x your income by age 67

There are many other tools in the market, such as robo-advisors, that can help you measure your risk tolerance, time to retirement, etc., and recommend and rebalance your asset allocation to suit your needs. wealth front and improvement For this reason, there are two popular robo-advisors. This hands-off approach helps us avoid making investment decisions purely on emotion.

While it’s natural to want to check in your 401(k) balance or other investment account balances throughout the year, it’s important to think about why you’re checking in. We recommend working with a financial planner to establish financial goals and meaningful benchmarks along the way.

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