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Here's a lesson I wished I learned earlier in life: As soon as you start making money, you should start a 401(k) or a retirement account.

For the first few years of my working career, I was relatively inactive on the 401(k)-front. That changed around 2005 when I woke up and aggressively became involved with how my money was allocated.

My neurotic nature carries over to my financial self, making me extremely cautious about my money and investments. But, like most people, I want my retirement money to grow, and I realize investment diversification is the key.

Choose The Right Nest for Your Egg
These days I have a significant amount of money in a money market fund, which might not be the best move, according Stuart Ritter, a certified financial planner for T. Rowe Price. “Having 30% in money markets is appropriate if you’re 95 years old,” says Ritter.

I’m considerably younger than that.

So I didn’t have the heart to tell him I have nearly double in a money market fund with one retirement account, at an age where I’m expected to be a lot more risky. And, this is not due to headline news because despite checking on my account nearly everyday, I don’t move my money around more than once or twice a year. But, with my considerable money market exposure, “you’re avoiding short term market risk, but taking on a high amount of inflation risk and your investments are not growing fast enough to keep up with the cost increase,” says Ritter.

I want to respond: "But my two year personal rate of return for the same account has been a little up over 9%, and my year to date personal return is negative 7.7%. Can I least be 30 years old? It’s the new 20."
Let’s talk tips to making your retirement money grow.

Diversification and Asset Allocation

These terms are thrown around constantly and some people might not understand the true meaning of diversifying or what asset allocation looks like. Placing 33% of your 401(k) in large cap funds, 33% in small cap funds and 33% in money market funds is more asset allocation and less diversification.

“The first thing people need to do is get their mix of allocations right, which changes as your time horizon shrinks,” says Ritter. A 25-year-olds mix of allocations is different from a 55-year-old’s allocation.

Your portfolio should hold stocks and bonds to represent asset allocation, but different types of stocks and bonds, that's diversification.
“Diversification prevents something bad happening to a particular sector of the market from having too big an affect on your portfolio,” says Ritter. Example: Let’s say you had 100% of your retirement funds placed in large cap funds, and 80% of your exposure was in the financial sector, if that sector plummets, then the impact to your retirement is more astronomical than someone who has properly balanced their exposure to numerous sectors. Of course, recently, since the whole market went down, diversification will not necessarily help. BUT, market turmoil tends to be cyclical. If one goes up, the other goes down, and you’re exposed to both, then you’re balanced.

Expense Ratio
If you’re like me, just the mere inclusion of a mathematical term can complicate things. But, knowing and understanding expense ratios are easier than you think, it’s merely the percentage investors pay for administrative fees and operating costs. That includes salaries, paper and pens, and even building costs that a mutual fund incurs to function. If your portfolio provides multiple options to, say, large cap funds, then looking at how much of your investment will be used for normal operations should be considered. “If you have more than one, then certainly expense ratio should be important when choosing,” says Ritter. Let’s say there are two Common Cents Large Cap funds, and all things are equal, except varied expense ratios of 1% and 2%. Consider the fund with the lower percent. Like most investments, paying less is more beneficial to money growth. Another tip: Ballooning assets tend to deflate expense ratios because the more money a fund has, the lower the percentage the fund needs to operate.

Highs and Lows
At some major retirement providers, the 52 week high and low is listed for funds. Personally, I never invest in a fund if it’s a record price, whether that’s high or low. I call it the money ceiling rule. It’s my own mind game. I use the high and low price to purchase somewhere in the middle using funds from my money market account. Then again, according to Ritter, “when it comes to constructing your portfolio, there are much more important aspects of choose investments.”

What steps do you take when you’re moving around? Be Honest. How do you pick and choose asset allocation?

It’s not just your money, it’s common cents. In this new weekly fixture, we’ll take a look at common money problems. Write to us at, or place your suggestions in the comment section below.