How to Invest Minimal Retirement Assets

Here’s what to do with a small retirement account balance.

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At the end of 2007, the average 401(k) balance was $64,454. The average balance at the end of 2008 had declined 22 percent to $50,274, according to the Investment Company Institute. This is obviously not good news for people nearing retirement, because 401(k) accounts hold a significant portion of many people's retirement savings. Luckily, the market has started recovering since 2009 and the average 401(k) balance has risen. But many people still wonder why their 401(k) is not performing to their expectations. Here's how to make the most of a small retirement account balance:

Allocate your assets. Let’s say you are 50 and have little to no retirement savings. What do you do? Fixing your retirement plan is not as easy as just reallocating your contributions to stocks that are performing well, because chasing past performance is one of the easiest ways to lower long-term returns.

In order to increase the chances of a comfortable retirement, you really need to create a solid plan that you can stick to. The details largely depend on your age and how close you are to retirement. Which assets to invest in is mainly based on your willingness and ability to take on risk. The general rule is the older you are, and thus the less time you have to wait for the market to recover, then the more of your portfolio you should invest in bonds.

Maximize your opportunity. Familiarize yourself with your employer’s retirement plan. Some employers still offer a 401(k) match to workers who save for retirement. But if you are not contributing enough to the plan, you will not get the full match. A matching contribution is one of the best possible returns you can get on your money, so make sure that you are contributing at least the minimum amount to get the full match. Many employers reduced or eliminated the match during the recent economic crisis, but some companies have since restored them. If you are lucky enough to be employed by a company that still contributes, then take advantage of it.

Minimize fees. Management and administrative fees are deducted from the assets within your retirement plan. In times of great market performance, your returns generally cover the costs. But the negative impact of fees on your retirement savings is even more worrisome in bad markets. High management fees in a low return environment can actually cost you money to invest. For example, in March 2011 Walmart’s Retirement Preservation Fund, a stable value fund, lost 0.5 percent. The fund paid almost nothing in interest, so employees were paying money to invest.

Get advice. For many people, meeting with a financial adviser is a great way to start the process of saving for retirement, even though they do charge for their work. A third objective party can help ensure your account is properly allocated, so that you can maximize returns and minimize losses. While some financial advisers offer biased advice, there are a great many professionals who are worth their fees as long as you take the time to find an appropriate candidate.

David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.