Thursday, May 19 2022

Q. It’s the start of a new year and I want to review my investments, which are all in my 401(k) and an IRA. When looking at asset allocation, should I consider the accounts separately or together? My 401(k) has fewer investment choices, but basically one in each asset class.

— Investor

A. We are happy to hear that you are saving.

And you’re right. The start of a new year is the perfect time to review your investment strategy.

You should start by taking a risk tolerance questionnaire, said Jody D’Agostini, certified financial planner at Equitable Advisors/The Falcon Financial Group in Morristown.

This will help you determine the level of risk you’re willing to take to achieve your goals and the time frame in which you’ll need the money, she said.

“If you have a lot of time until retirement, it’s advisable to take more risk or stocks in your portfolio,” she said. “Especially now when inflation is high; with an average of around 7% in December, you need the momentum that equities provide to break that figure and provide some growth for your future.

Next, you need to create an asset allocation model that is more likely to achieve the desired rate of return.

She said you should look at your portfolio more holistically.

“You can have an overlap in funds giving you either more risk than expected or an overlap in managers and/or companies giving duplication in the portfolio,” she said.

Conventional wisdom recommends owning no more than 10% of a company’s stock, especially if you work in that company, she said.

“Your human capital – your labor – and your investments are both tied to this business. You are too closely tied to its success or failure.

“Diversification can reduce risk and provide more reliability about returns,” she said.

So yes, when considering your overall allocation, consider your 401(k), IRA, and any other investments as part of a larger pool.

Send your questions to [email protected].

Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Register for NJMoneyHelp.comit is weekly e-newsletter.


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