Some bad financial advice

Source: Jonathan Clements of wsj.com

If your adviser who is disparaging lifecycle funds and telling you to throttle back on your 401(k) contributions.

It's time to find a new adviser.

My advisor suggested otherwise - investment in lifecycle funds would provide some balance to my portfolio that was setup by him.

1. "Lifecycle funds are a lousy investment."

Lifecycle funds were developed primarily to help 401(k) plan investors, who often struggle to build sensible portfolios. These funds offer one-stop shopping by combining a slew of investments - mainly stocks and bonds - in a single portfolio.

A talented adviser may be able to build you a better portfolio. But it may not be a whole lot better - and maybe not enough to justify the adviser's fee.

2. "Don't fully fund your 401(k)."

Some advisers have argued that people should contribute 401(k) only enough to get the full company match.

They claim that when you fund a 401(k), you are setting yourself up for huge tax bills later and thus it isn't worth maxing out on these plans. Any withdrawal (contributions and gains) will be tax at ordinary income rates, and may also incurs the extra 10% penalty.

Instead, these advisers argue that this money should be invested through a regular taxable accounts - only the gains are tax at the preferential long-term capital-gain rates.

The reality is, 401(k) plans are a great deal, even if you aren't getting a company match. The contributions and the gains are tax deferred; and thus, your 401(k) portfolio is compounding to the fullest.