401k Returns: Understand Your Rate of Return (Compare, Calculate, & More)
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- เผยแพร่เมื่อ 24 ก.ค. 2024
- Your 401(k) rate of return affects how much you’ll have at retirement. Learn what drives returns, what a personal rate of return is, and how you can calculate the returns in your account.
Account balances depend on how much you add, how much you withdraw, and how your investments perform. But it can be hard to understand investment performance, especially when you’re adding money or changing investments.
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In many cases, it’s easy to monitor your 401(k)’s rate of return with calculations provided by your plan provider. Those personal rates of return offer a specific look at your account and your activity. That can be extremely helpful. But what’s behind those returns-what decisions affect how much you earn?
The level of risk and your contribution level might be the most important factors in your success. And sometimes, high returns offer surprisingly little benefit. The timing of your investments also matters, although this might also be less important than other factors.
Ultimately, returns are a look in the rear-view mirror. They can help you track your progress and compare various accounts, but the specific number isn’t always the most useful piece of information. Reviewing your investment choices might tell you as much (or more). While personal returns are helpful, it’s also critical to review investment returns for each of the funds you use.
Understanding investment returns involves reviewing your own performance plus the results of each option in your portfolio.
As you learn all of this, you’ll need to get familiar with average annual returns, cumulative investment returns, different investment benchmarks, and more. And if you choose, you can really dive into details of different ways to calculate returns. You might look at money-weighted returns, time-weighted returns, and other approaches. In many cases, your personal rate of return is an internal rate of return (IRR).
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Justin Pritchard, CFP® is a fee-only fiduciary advisor serving Colorado and most other states.
CHAPTERS:
00:00 401(k) Returns - Overview
01:00 Personal Rate of Return
07:59 What Is the Average Return in 401(k) Plans?
09:53 What Is a Good Rate of Return?
15:30 Why Is My Rate of Return Negative?
16:44 Calculating Your 401(k) Rate of Return
There may be several ways to calculate investment performance. You must familiarize yourself with all of them before making important decisions. Tools and calculations featured here are for illustrative purposes only, and there is no endorsement of the tool’s provider or methodology. Calculate at your own risk. Any performance numbers shown are for illustrative purposes and do not suggest that the firm can produce those results for clients. Investor returns depend on timing, risk levels, security selection, luck, fees, and more. Past performance does not guarantee future results. You can and almost certainly lose money investing, at least temporarily. You might not be able to recover from losses before you need to use the money.
IMPORTANT:
It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section has opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
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Thanks for your content. Subscriber from St.Louis.
Thanks for watching!
Thanks, Justin, great content!
Thank you!
@@ApproachFinancial My pleasure!
I like using a baseline like the S&P 500 as an index that may be helpful to use as a baseline for an investment rate of return.
Yes, that is probably the go-to for a lot of stock portfolios. It's so tricky now that the S&P 500 is so tech-heavy. But at some point, you have to pick something and go with it.