Pay a Finance service or Personally manage your retirement funds?

Of Mountains & Valleys

Like most people I used to put my 401K in safe funds when choosing safe versus risky fund options. My yearly returns also reflected my choices, most of the time I would average 5% or less (mostly less).

A big problem with this method of saving for my retirement was the fact that most of the money in my 401k was coming from the deductions on my check. This would actually be ok if I started working and funding my 401k at 21, but life happens and  I started later in my twenties.

To increase my returns I started following the daily performance of all the funds available in my 401k and I would manually rebalance my account every few months. I also started having larger balances in more aggressive funds and would rebalance every few weeks. This helped raise my yearly returns a few percentage points in some years but not always.

I decided to write some code to automatically rebalance my account for me since I was loosing money in a lot of situations when things would come up or I would forget to log in and rebalance my account. In 2 and a half years that my code has been running it was able to double the balance that was there when it started running, averaging about 20% returns at this rate I will have enough to retire in about 10 yrs if I stop my contributions and less than 10 if I keep adding my contributions.

If my code had not worked my other option would have been to pay for one of the services offered to manage our company’s 401k plans for a certain fee. Right now am happy my money is working just as hard as I do, but I also understand not everyone is in the same position am in since my day job involves writing code. 

Personally, I would suggest if you are trying to improve your 401k returns try and invest more time on a regular basis (days,weeks not months) and learn how the different funds you have available are performing and keep rebalancing your account frequently, some plans will also let you set how you want your account rebalanced every month/pay period automatically for free. If you have some more time and skill you can learn how trading systems work and build something that is able to evaluate your funds and rebalance your account accordingly. The last option which I haven’t tried would be to pay a service to automatically rebalance your account, I feel even if you are going to go with this option to first do option one so that you can use that as a baseline to gauge the paid services performance. 

Some people argue that your 401k should be treated like a marathon where you setup your preferences and leave it and only rebalance a few times a year. This is what I did with my account for almost ten years and in 2.5 years of aggressively rebalancing as the market changed I was able to add to my account as much as I had been able to contribute in 10yrs, without having to depend on salary increases to increase my contributions. So for me am sticking with the sprint, if it means I will need fewer years to build my retirement nest to where I would like it to be.

Note: All thoughts written here are my own, and should not be taken as financial advice, am not a financial expert just someone who likes to solve real world problems using code.

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