Why Target Employees Shouldn't Check Their 401(k) During A Bull Run

In the realm of financial management, a key tenet for Target employees is the vigilant oversight of one's financial accounts, encompassing aspects like credit scores, emergency funds, and credit card balances. However, a divergent approach is advised when it comes to 401(k) accounts. According to CNBC Select's discussion with Sarah Newcomb, a behavioral economist at Morningstar, excessive monitoring of these retirement accounts may lead to detrimental effects.

The Perils of Frequent 401(k). Checks The act of regularly inspecting investment portfolios, especially during market downturns, can incite panic among investors. Observing a decrease in portfolio values often leads to rash decisions, such as selling assets, potentially at a loss, and attempting to reinvest when the market recovers. This reactionary behavior typically undermines long-term investment strategies and financial stability.

Conversely, during market upsurges, an increase in portfolio values may instill a false sense of confidence in one’s investment prowess. Newcomb highlights the danger of this overconfidence, noting how individuals tend to credit themselves for positive market trends and blame external forces for downturns. This mindset can create unrealistic expectations and lead to poor financial decisions.

Optimal Frequency for Checking Your Target 401(k). While it's ill-advised to obsess over the short-term fluctuations of your 401(k), complete ignorance of your retirement portfolio is not recommended either. Newcomb suggests establishing meaningful benchmarks that align with your financial goals and realistically reflect your progress towards these objectives. This approach aids in maintaining focus on long-term outcomes rather than short-term market volatilities.

Setting Personal Financial Benchmarks. To create effective financial benchmarks, one must first identify their financial goals. Collaboration with a financial professional can be instrumental in defining these goals and corresponding benchmarks. These benchmarks should not only resonate with personal objectives but also remain attainable. For reference, Fidelity suggests the following general retirement savings milestones:

• - Save your annual salary by age 30.

  - Accumulate three times your income by age 40.

• - Have six times your income by age 50.

- Save eight times your income by age 60.

- Aim for ten times your income by age 67.

Additional Tools and Strategies The utilization of robo-advisors, such as Wealthfront and Betterment, can further streamline the investment process. These tools assess factors like risk tolerance and time horizon to retirement, offering tailored asset allocation recommendations. This automated approach minimizes the influence of emotional decision-making and ensures a more disciplined investment strategy.

Conclusion While periodically reviewing your 401(k) and other investment accounts is a prudent practice, it's crucial to approach these reviews with a clear understanding of your financial objectives and a strategy to achieve them. Engaging with a financial planner to establish and adhere to meaningful financial benchmarks is highly recommended. This strategic approach ensures a balanced perspective, focusing on long-term financial health rather than short-term market movements.

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For individuals nearing or at retirement age, understanding the implications of Required Minimum Distributions (RMDs) from 401(k) accounts is crucial. After reaching the age of 72, retirees are mandated by the IRS to start withdrawing a minimum amount annually from their 401(k) and similar Target retirement accounts. This rule aims to ensure that retirement savings are eventually taxed, as these accounts typically benefit from tax-deferred growth. Overlooking RMDs can result in significant tax penalties, up to 50% of the amount that should have been withdrawn. This factor becomes especially pertinent for those in or approaching their sixties, as strategic planning can mitigate tax implications and optimize retirement income. 

Managing your 401(k) is akin to being a seasoned gardener tending to a prized perennial garden. Just as a gardener wouldn't uproot flowers daily to check their roots, similarly, constantly monitoring your 401(k) during market fluctuations can be counterproductive. The seasoned gardener knows that plants need time, care, and the right conditions to flourish. They trust in their initial choice of plants and their gardening strategy, only making adjustments as seasons and conditions change. Likewise, your 401(k) requires a long-term growth strategy, patience, and occasional adjustments based on life stages and financial goals, rather than reactive decisions based on short-term market movements. This approach ensures a thriving financial 'garden' at the time of retirement, just as a well-tended garden blooms beautifully over time.