6 min read

Putting the K in Your 401(k)

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The email header with the "For What It's Worth" logo, graphic that includes a hand holding a representation of a blooming flower that has money blooming at the top, and the tagline "Insights to invest in the world you want" underneath it.

Happy Thursday!

Maybe it’s just us, but the fall/back-to-school season evokes this primal desire to get life in order. While most of us are no longer packing our bags with freshly sharpened pencils and TI calculators (which, amazingly, kids are still using), it’s as good a time as any to start fresh routines — especially where your finances are concerned.

In the face of inflation, rising interest rates and the ever-looming threat of a recession, here are five steps you can take to put yourself on a positive financial path:

  1. Do your homework: How can you make smart investing decisions without understanding where you’re putting your money? Learn how analysts value stocks and use these resources to find independent analyses of sustainability and values-aligned stocks and funds.
  2. Chat with an advisor: If you’re just starting to invest, have a complex financial situation, or have trouble keeping emotions out of your investing decisions, a financial advisor can help set you straight. Here’s how to find one.
  3. Fight the bullies: In the world of investing, the biggest bully today is inflation — no one can escape what economists call “the invisible thief.” Consider these inflation-fighting strategies to give your cash the greatest chance of keeping up with inflation. It is kind of like holding onto your lunch money.
  4. Bank smarter: While rising interest rates are bad news for home buyers, they also mean that rates for high-yield savings accounts have climbed to their highest level since 2019. Now is a good time to shop for a better rate on your savings. And while you’re at it, evaluate how your bank’s practices align with your values.
  5. Think about your future: Retirement may seem a long way off, but tomorrow is National 401(k) Day, reminding us that it’s never too early to start socking away money for the future. We’ve got answers to your 401(k) FAQs here, and in today’s edition we’ve got more tips on how to make the most of an employer-sponsored retirement account, so keep on scrolling.

Remember, no matter what kind of return your investments yielded this year, you can plant the seeds for future growth.

News you can use

Graphic of newspaper with magnifying glass
  • Clean energy projects are picking up speed since the passage of the US Inflation Reduction Act (aka, the climate bill). Toyota, Honda, LG Energy Solutions, Piedmont Lithium, and First Solar all announced plans to build factories that will take advantage of EV and renewable energy incentives. And don’t expect a slowdown — investment in renewable energy will total $1.2 trillion by 2035, according to Wood Mackenzie.
  • Businesses keep hiring, even as the economy slows. US companies added 315,000 jobs in August, beating analyst expectations. Also rising: the unemployment rate, which reached 3.7%, and wages — average hourly earnings are up 5.2% from last year. This could all play a key role in any Fed decision-making about interest rate increases.
  • CVS is moving deeper into the healthcare sector, joining Amazon and Walgreens as it expands its offerings for patients. The retail giant announced plans to buy in-home health-care company Signify Health for about $8 billion.

The 411 on your 401(k)

Graphic of the word the letters and numbers “401k” with the “0” represented by a piggy bank (with coins around it).

If you’re lucky enough to work for an employer that offers a 401(k) plan, experts keep reminding us that this is a perk to take advantage of. These employer-sponsored retirement plans make saving for the golden years as easy as ABC. Your contributions are taken directly from your paycheck (potentially even putting you in a lower tax bracket). Then, your investment returns grow tax-free until you’re ready to start withdrawing funds for retirement. And many employers will match your contribution, sometimes going as far as doubling your savings.

If you want to take advantage of your company’s 401(k) plan, simply signing up is the first step. But once you submit the forms to your benefits department, don’t forget to check on your account regularly and make sure you’re invested in the right mix of funds.

A recent survey found more than half (55%) of adults ages 26 to 41 spend more time planning for vacations than for retirement. We won’t point any fingers, because mapping out a road trip and shopping for beach hotels sounds like a much better way to spend an evening to us, too. But there are a couple of big reasons why it’s a good idea to give your retirement plan a health check-up every once in a while, so let’s talk about why your 401(k) deserves a little TLC.

Balancing Risk and Returns

If you want to end the Game of Life with enough cash to retire in Millionaire Estates, experts tell us that you’ll need to balance opportunities to generate high returns with the need to preserve your capital. Generally, they counsel investing more of your money in stocks earlier in your career (since they are riskier but offer high growth potential) and then shifting the balance to more stable bonds later on. As always, chatting with a financial advisor about your particular situations is a good idea.

A typical 401(k) plan offers enough fund choices to help you create a balanced portfolio, but you’ll need to check your account every so often to make sure you’re staying on target (and we’ve got some tips on how to do that). There’s also a super easy way to make sure your account always stays invested in the right mix of assets as you get closer to retirement. It’s called a target date fund, and they’re wildly popular — 81% of 401(k) participants use them, according to Vanguard.

A target-date fund is a mutual fund that allocates a basket of investments based on your expected retirement date, adjusting that asset allocation over time. The “set-it-and-forget-it” approach can work well for investors who don’t have the time, knowledge, or desire to actively manage their 401(k).

However, simply going with the default option of a target date fund doesn’t give you much flexibility to direct your investments in ways that align with your values. And we’ll go out on a limb here and assume that’s important to you if you’re reading FWIW 😊. That leads us to the second big reason to check in on your 401(k)…

Investing for the Future You Want to Live in

By thinking strategically about how you allocate funds in your 401(k) or other retirement accounts, you wield power over more than just the lifestyle you’ll lead in your post-working years. You can also help shape the future you want to live in — if you think strategically about how to align your investments with your values.

To do that, you can check any fund’s sustainability credentials online with tools like those from As You Sow, MSCI’s ESG fund ratings, and Morningstar’s ESG Screener. Comparing different funds based on what’s in them is the first step to aligning your retirement account with your values.

Unfortunately, not all investors will be happy with what they find when they start digging into the options that are available. A recent survey found that 87% of defined-contribution plan participants want to invest in line with their values. Yet just 18% of 401(k) and 403(b) plans offered ESG mutual funds at the end of 2021, according to Fidelity data.

If you find your company’s plans are lacking options to invest according to your values, you can petition the person in charge to request more options. As You Sow has some great tips and even email templates you can use to advocate your position. One suggestion: Be empathetic. if you want to ask your company to consider offering more values-aligned options, the person responsible for your company’s 401(k) plan might be won over by the persuasive data. Bring them along your own learning journey to see what could be possible, especially given that employees interested in ESG are more likely to contribute to their retirement plan.

With a little TLC, your 401(k) account can be the key to helping you retire comfortably — and feel good about the path you took to get there.

Before you go -

If (like us) you didn’t make it to Burning Man this year, you can still check out one of the festival’s coolest climate-change-inspired art installations — both online and maybe in a city near you sometime soon.

** FWIW team members own shares of Amazon.