Diversification—spreading investments across different asset types and risk levels—is a fundamental principle of investing. For those with a 401(k) who haven't reviewed their portfolio recently, adjustments can be made quickly, often in less than a day, according to wealth manager Phil Battin, CEO of Illinois-based Ambassador Wealth Management.
“For those that are more technically savvy, it's usually two to five minutes [of work] unless you want to do a lot of deep dive analysis,” Battin said. “But if a person, in general, allocated 15 to 30 minutes…I think that’s more than enough time.”
The first step is to reassess your risk tolerance. Most 401(k) administrators offer a simple questionnaire to identify your natural risk comfort level. If high-risk investments cause stress, a low- or mid-risk option may be more suitable.
Your retirement timeline is also crucial. Those nearing retirement should consider lower-risk strategies to protect savings, as steady returns are vital for income. Conversely, younger investors can afford to take on riskier assets for growth. “If the individual in question is young and is so far from that retirement date … I tell them to be as growth-oriented as possible,” Battin advised.
Once risk and timeline are set, diversifying is straightforward. Online accounts typically offer pre-diversified low-, medium-, and high-risk options with fact sheets detailing asset allocation. For active investors, Battin recommends quarterly reviews to sell high and buy into undervalued assets. Educational resources from plan administrators, Vanguard, and the Securities and Exchange Commission can help investors make informed decisions.
