How to Change Your 401(k)’s Behavior

401(k)s can sometimes seem like a temperamental friend. Sometimes your investments will perform to your satisfaction and sometimes they will end up disappointing you. With the ongoing market volatility, you may become frustrated with your 401(k)’s behavior more often than not. And if you are a younger investor, retirement planning may have confounded you from the moment you enrolled.

Volatile and seemingly unpredictable at times, 401(k)s can cause some plan participants to throw their hands up in the air and wonder if this friendship is worth all the trouble. However, don’t let your 401(k)’s chaotic nature sabotage your desired retirement future. Sometimes it just takes a step back or a “time out” to reevaluate your retirement connection.

When your 401(k) needs a behavior adjustment, these three steps can help you reevaluate and readjust.

Rebalance your portfolio.

If you leave your investments unchecked, your balances in each of the asset classes will stray away from the initial target allocation. If you want your investments to keep up with the market’s ups and downs, you will need to rebalance your portfolio on a regular basis. When your retirement plan has been neglected, it’s important that you step in to readjust your investments so that they realign with your retirement goals.

Raise your contribution amount.

Many financial advisers recommend increasing your contribution amount by 1 percent each year. However, not everyone is in the ideal financial situation to do so. Therefore, at least try to increase your contribution amount with each raise or promotion.

Most Americans need to increase their contribution amount to a work retirement plan over time in order to reach their retirement goals. Although retirement may seem far away, you only have one shot to prepare, so it’s important to do everything you can now for what’s ahead.

Avoid chasing after short-term relief.

Even though we all look for ways to achieve immediate satisfaction, that mentality is dangerous when it comes to your investments. Although the market instability might cause your retirement plan to act up, avoid making sudden investment moves to gain short-term relief. For example, moving your entire portfolio to cash following a significant market downturn could hurt your long-term return potential, as you could miss out on the potential rebound. It is far better to develop a solid plan from the start and stick with it through both the ups and downs.

Retirement planning is a long-term process that takes patience, so it’s crucial to stay levelheaded when you hear or see something like, “The market is down.” Remind yourself that the “market” can mean different things in different contexts. The statement could be referring to the S&P 500, the Dow, housing, commodities, emerging markets, etc.

Depending upon your exposure to the “market” being discussed, you may not be as impacted as you might expect. For example, the S&P 500 and the Dow are benchmarks to describe the general market environment and some of your investments may not even be part of those indexes.

401(k)s or any other retirement plan can be very temperamental, especially given the recent market volatility. However, with patience and commitment, you have the ability to set your retirement account on the right track.  Just as you would take the time to build a life-long friendship, you should take the time with your 401(k) as well.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.