Help! I’m all shook-up over my 401(k)!

Q: I hear conflicting advice on how to manage my 401(k) retirement fund. Should I adjust it every month? How much of my company stock should I hold? And what's the least I should contribute?

A: I understand your confusion. Unfortunately, the days are long gone when it seemed your 401(k) would make money no matter what. While I don't recommend you react to every market gyration by frantically shifting your money around, the reality is that most portfolios are long overdue for an overhaul. Here are my recommendations:

1. Review your assets. Start with your current statement by reviewing your asset allocation. Find out how much you have stashed in each fund and what type of investments those funds hold. You may be surprised to find out that your "value" funds hold growth companies, or that your income funds hold stocks that don't pay dividends.
2. Balance stocks with bonds. Likewise, review your overall split between stock and bond funds. If you have more than five years to retirement, you should have at least 55 percent of your market in stock funds. This percentage needs to be further split between large cap, small cap, and international funds, as well as between growth funds and value funds. However, even people in their 30s should have a healthy proportion of bonds in their mix.
3. Save more. Then, start saving more. It might sound crazy, but many of us don't save enough to begin with. There are a number of calculators on the Web that can help you figure out how much you need to save to reach the sort of retirement you desire. I like the ones at Financialengines.com and Morningstar.com. As a general rule, you should be contributing the most your plan allows to your 401(k).
4. Watch out for company stock. While about 20 percent of 401(k) plans offer company stock, keeping more than 10 percent of your assets in company stock is really taking too much risk. If the company hits the skids, you can see huge losses in your retirement account at the same time your job is on the line. However, if you're required to own company stock as a matching contribution, there are ways to offset your risk. Choose stock funds that invest in industries that don't move in sync with your company. For example: If you work for a tech company, buy a value fund that invests in non-tech companies or in a sector fund in an unrelated industry (like real estate or health care).
5. Move your money. Once you know where you want to move your money, it's time to actually do it. Many financial advisers recommend an all-at-once approach. If you're afraid that by doing that you'll be selling too low, shift a portion of your money every month for six months until your asset allocations are in line — then make sure to rebalance once a year.

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Jean Chatzky’s Bottom Line
This week: Tax deductions on items given to charity

If you're like millions of Americans, in 2003 you gave old stuff to Goodwill, the Salvation Army, or other thrift-shop organizations, and you got a receipt in return. It probably says something unspecific like, "Three Bags, Clothing." That's because most major charities won't tell you what your donated items are worth. It's up to you to figure that out. So what are the tax rules?

Tax rules: According to the IRS, you can deduct the "fair market value" of the clothing, household items, used furniture, books, and other items that you give away. Fair market value is the price a buyer would be willing to pay for them. And it depends upon the condition of your items. A piece of clothing in good condition means it has no noticeable wear or tear. Fair condition means it looks slightly worn. And poor condition means it looks well worn. A sweater, for example, may be worth $22 in good condition, $15 in fair, and $5 in poor.

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Estimating the value: What's the best way to determine the "fair value"? The IRS suggests you shop thrift stores or classified ads or auction sites like eBay to fashion a good guess. You could also visit a Web site, www.itsdeductible.com, which has a computer program that can show you the value of your donation

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Copyright © 2004. For more information, go to her Web site, www.JeanChatzky.com.

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