The DABL 401k Planning Strategy
DABL: Diversify, Allocate, Buy and Hold, Long-Term
Amid the financial crisis and collapse of retirement savings for millions of workers, plan sponsors are looking for ways to reassure nervous and overwhelmed employees. One concept we’re seeing discussed more often is DABL – a simple four-point plan intended to help employees grasp and focus on basic principles to help them recover and build their retirement investment accounts.
The DABL 401k plan is nothing novel. It simply conveys in an easy-to-remember acronym format four basic principles that every investor should adhere to:
Diversification – Ensuring your portfolio has a wide mix of investment. Diversification simply means having different kinds of investments, such as stocks, bonds, and mutual funds. It also means having a mix of investments in different sectors or industries. A well-diversified portfolio might include bonds, money market funds, and stocks of small, medium, and large companies in a variety of industries and countries. Divesrification ensures there will always be winners to help offset losses and is the proven way to protect against catastrophic losses.
Allocation – This goes hand-in-hand with diversification and generally refers to the portion of the pie that is asset categories like stocks, bonds real estate, etc. Asset allocation largely depends on your tolerance for risk and is different for each investor.
Buy and Hold – Average 401k account owners will likely never be able to devote the time and energy needed to actively trade investments with success. A better avenue for most is to buy and hold a well diversified portfolio, periodically reviewing and adjusting asset allocations to reflect life changes (e.g. allocating more to fixed income investments as retirement nears).
Long-Term Perspective – Maintaining a long-term perspective is key to successful 401k planning and investing. What constitutes “long-term”? Minimally, a five to seven year investment holding period. A long-term horizon is easy to understand for younger workers decades away from retirement. But even workers just a few years from retirement need to realize that they are likely to spend two to three decades in retirement.
This is the DABL philosophy in a nutshell. Nothing revolutionary here, but some proven 401k planning principles made a bit easier to remember with a simple acronym: DABL.
