“Rollover ” and Let Me Scratch Your Belly!

Curt Pouyer |

My dog is named Sam and wherever Sam goes he always winds up having his belly scratched.  I’ll admit, I get a little jealous.  I do not care so much about having my belly scratched but I am definitely a fan of a good back scratch’n.  So, what does this have to do with investing or finances?  

Well most of us participate in retirement accounts associated with our jobs, such as a 401K, Thrift Savings Plan, Public Employee Retirement Association or some other sponsored retirement program.  All of these are outstanding plans and we should be taking full advantage of them.  As a matter of fact, the only downside to these plans is that their performance is limited.  Usually these accounts give risk assessed choices to the participant that would provide a relatively consistent upside related to time.  These risk assessed choices are usually presented in a few different options such as Target Retirement Date Funds or even simpler approaches as Conservative, Moderate or Aggressive allocations.  Some plans provide participants with a pool of Exchange Traded Funds (ETF’s) to choose from with more sector options.  All of these options are fine as long as you are working for the sponsoring employer and taking advantage of any employer contributions.  

What I want to highlight here is the options you have when you change, quit or terminate from an employer.  There is an infinite amount of investments that can be used outside these vehicles to tailor a strategy for yourself.  Most employees do not realize that if you change employers one way or another this infinite amount of investment opportunity becomes available to them.  How?  Through what is called a “Rollover”.  

If you decide to change jobs, get laid off or just retire you have the option to rollover your retirement plan to a Individual Retirement Account (IRA).  This is not often an option that is presented to you through human resources unless you are retiring.  More often than not employees transfer their previous retirement plan to the new one with a different employer.  There is no need to do this when you can have your money working so much harder.  

The “Let me scratch your belly” analogy is referring to the idea of tailoring your portfolio to a more specific strategy to accomplish your goals.  The investments allowed inside of an employer sponsored retirement plan, mutual funds and ETF’s, do have their pros and cons but are in a whole designed to capture broad market gains which in turn usually captures all the losses as well.  Moving outside of those positions or at least limiting exposure allows you the freedom to be more specific about your investments to accomplish such things as increasing income or limiting downside. For example, if your portfolio desires more income allocations your ideal investment is going to be high quality dividend stocks.  The yield produced by income mutual funds and ETF’s is much less and more volatile than investing in the actual companies that are offering the income.  

Using mutual funds and ETF’s are great vehicles for diversification and are ideal for beginning investors or passive investment strategies.  However, a well-structured portfolio will not only utilize these vehicles but should have a greater proportion allocated to individual stock positions.  Allocating your money in such a way will decrease your market risk, increase income yield and allow for greater potential capital return. 

Do yourself a favor and rollover to an Individual Retirement Account.  When you create an investment strategy that is tailored to your needs, watching it work is like having your back scratched every day.

Here is wishing you the best in this New Year with your investment decisions.  Please do not hesitate to contact me with any questions at cpouyer@montgomerywealth.net.  

Have a Blessed and prosperous New Year!