It's a benefit to have a 401k plan with your employer but it can also be stressful to decide how to best allocate your contributions. Michele Schneider, partner and director of trading research and education with MarketGauge.com, joined Cheddar News to explain which markets are best to invest in, depending on your age demographic.

<div class="block">It&#39;s a benefit to have a 401k plan with your employer but it can also be stressful to decide how to best allocate your contributions. Michele Schneider, partner and director of trading research and education with MarketGauge.com, joined Cheddar News to explain which markets are best to invest in, depending on your age demographic.</div>

Stretching Your Dollar

Stretching Your Dollar: Understanding Your 401k Allocation

Many Americans thinking about their retirement use the 401k retirement plan to invest for their golden years. But with inflation still high, lots of people have questions as to how did the best decide how to allocate funds to their 41 K. So joining me now to help is Michelle Schneider, partner and director of trading and research and education from market G dot com. Welcome. Hi, nice to be here, Kristen. It's wonderful to have you on set here. Of course, 401k is a very popular topic. What goes into deciding whether a 401k is right for you. Well, one of the biggest factors of course would be age. So if you're a baby boomer, most likely at that point, you have a level of security and your biggest concern is going to be the legacy, what you're gonna leave for your kids and your grandkids. In which case, most of the baby boomers that we talk to, they like a blended portfolio at at this point with some fixed income, especially short duration. They like some exposure to obviously some stocks. And right now, a lot of people are also switching to commodities, which is something they haven't necessarily been involved with, but they've really become involved if you're a younger person, a lot of younger people have become more active in, in terms of their own management of portfolio, which is excellent. And we highly recommend that but also they are looking for liquidity here and liquidity through free money, which we're basically getting at this point through the short duration bonds at these high interest rates. How should people go about managing their 401k in this environment? Well, for one, you definitely want, if you can get it a self directed option, we know that we have a lot of financial planners and that are our clients as we have an asset management company. And so, in essence, if you're not going to do a self directed option, then you want a financial planner who at least has a sense of what's going on in the market and can be somewhat flexible in this type of environment. The other thing is you wanna be careful for target date type 40 ones because they are heavy into equities and fixed income and they really don't give you any type of other exposure. So you are stuck there. Ok, good. So for our viewers watching, check out for that term target date might not be the best option for you. So we spoke a little bit earlier, Michelle, you reference to the sort of investments that people are interested in these days increasingly commodities to some extent. How do you create that strategy to decide which asset allocations work? Well, again, I think it's important for you to be uh somewhat aware of the changing market. But the overall theme really since COVID has been rising inflation and rising interest rates, so that should be your number one concern in terms of the management of your money in a 401. So you might wanna have say 10 to 15% exposure in gold. Gold is, is a, is a, is a safety play. It's, it's a valuable asset. Uh And right now, obviously gold is, is very attractive because of all the geopolitical uncertainty we have and is rising in the face of higher interest rates. Uh The second thing that you really want in terms of exposure to commodities would probably be looking at some of the broader types of ETF S that you can actually trade easily in an account D BC which gives you exposure to oil and metals DB A which gives you exposure to a lot of the agricultural and softs because just in case things get dicier, which at this point is very possible, those commodities will also rise. This is exactly what happened in the late seventies. So it sounds like for some people set it and forget it might be an option that they choose. But more so these days in a complex world, active management is something that people are increasingly turning to are there any sorts of rules around actively managing your 401k. Well, yeah, and I just want to reiterate why that's so important. If you look at the classic 60 40 portfolio for the last two years, they're down about 35%. And that's without including inflation. If you include inflation, many of these accounts are down 40 50%. So passive investing has not been a good plan. And if you believe as we do that, we can go into a stagflation environment because we do still have, well, today GDP numbers, right shows that we have a strong economy in certain aspects, but we have others that are showing real fear of recession. That's the classic stagflation. Then basically, I would say take the free money. And I keep saying that because that really is the safest thing right now is those two year short duration type uh bonds and look at maybe spring of 2025 I think until we can start to see things sort of reorganized and maybe we muddle through all of this and we get into a point of a normalization which is the fed funds rate and also the inflation rate are kind of the same, we're not going back to zero interest rates. So you don't even want that to happen. So it sounds like another year and a half. Um Investors might be obviously considering the strategy. Exactly. But if you have an opportunity to see how the market conditions change, then you can obviously be somewhat flexible and that's why it's so important to have that self directed. If someone changes their jobs, they might be wondering. Well, does the term for one case still apply to me? How did they transfer those funds perhaps out of their 41 K if they do change jobs to make sure that they don't lose out on any money that they've made? Well, I know that there are certain firms that will actually automatically transfer your 401k from one company to the next. But if you're just starting a job, let's say, um or you never had a 401k before and now you do essentially, they, most companies will offer about uh 6 to 10% that they will contribute and you wanna double that with your own salary. So then you would contribute, let's say another 5 to 10%. So that you would have about 20% allocated between company contribution in your contribution into it. And that's a generality, of course, always is going to depend on your age, your needs, you have kids, you know, what is your future look like and what is it that you want to do with your future in the current environment? Some people have had to at least consider or outright withdraw from their 41 K just to get by amid high inflation and high borrowing costs which our viewers know about that if they need to turn to their 401k to get by. Well, unfortunately, we have a statistic in this country that people can't even put together $400 in case of an emergency. So if you have a 401k, it should be the last resort because of the penalties. But clearly, if there's a choice between family and 401k penalty, I think most people would choose family. So, you know, kind of rate your emergency status and, and try as hard as it is, try to actually have those fixed incomes and maybe in different durations so that if you have to take some out, you won't be penalized any final thoughts for our viewers, Michelle when it comes to investing in a 401k, I'd say probably like again, I think the most important thing is that a lot of financial planners tell people to sit, they think passive investing is still the way and for many, many years it was. But if that's not the case anymore, and a lot of people who are in this business don't understand that because they've never been in this environment before, but we are not going back down in interest rates, we're going to stay high, perhaps even high. Obviously, you can see the check boxes that we have. So I would say the biggest thing is either self direct or get an education and make sure you speak to your own financial planner to make sure that person knows what's going on. All right, Michelle Schneider live down here on the floor of the New York Stock Exchange. Michelle. Thank you.