I am busy writing the great american memoir and so I won't be taking on very many Coaching clients this year.
So- I am making you an offer you can't refuse - read about it here
Why?
When you come from the view of working to get money to spend-that is poverty consciousness.
When you come from the view of money supporting your lifestyle that is -real wealth.
It is no surprise that a lot of people are depending on their 401K maximum balance to provide income in addition to their social security. That is why you need to make careful choices when you are investing your contributions into your 401K plan at work. Here are 5 of the most common 401K investing mistakes that can deplete your 401K balance quickly:
1) Don’t take fees into account. You may have a limited number of investment options and you may also have a brokerage option that will give you a lot more choices. Sounds like a no brainer to take the option with more choices. Not so fast. Many of the brokerage options have a mix of load funds (those with an upfront commission or a deferred sales charge) and no-load funds. Are you savvy enough to know the difference? Will you be able to pick out the ones with all those choices that are no-load and have low expense ratios?
2) Put all of your money in one sector. Good asset allocation means spreading your money around asset classes (large-cap, small cap, foreign, etc.) and asset styles (growth, value). A common error is to put your money into the fund that has the best investment return. This is not a great investment strategy. It is very risky and it doesn’t take advantage of buying low and selling high.
3) Leave a lot of money in the money market options. Since you can’t touch this money without penalty before age 59 and a half, why keep it in savings accounts? If you are that risk adverse, you should look into stable value funds or funds that invest in US Treasuries. Not having your contributions invested and working for you over time leads to a lot of disappointment when retirement comes and your 401k maximum balance is low.
4) Switch funds every quarter. Moving in and out of investments is a surefire way to lose a lot of money fast. That methodology is called market timing. It is proven not to work. Now this isn’t the same as reviewing your holdings once a year and determining if your asset allocation is still correct (for example, 60% growth and 40% income) or if the fund’s manager has left and the returns are lot lower than expected due to a new investment policy. That kind of review is important but just darting in and out of funds trying to get the best one is a losing strategy that never works.
5) Don’t stick to a plan. It is hard to have a long term outlook when the media is screaming at you to buy gold now or sell everything and go into cash. You should ignore all of that and invest according to your financial goals, your tolerance for risk, and your personal tax bracket. If you shoot for nothing, that is what you are going to get. Figure out what is a reasonable return that you can get with the asset allocation that you devise. Let’s say that you decide a 60/40 mix is appropriate for you. With that asset allocation, you determine that you should get 7% over the next ten years.
Don’t make these critical 401k mistakes when you are deciding what to do with your contributions. Even saving and investing 2% of your pay can make a big difference over the long term according to Fidelity. Avoid these 5 critical 401K mistakes and you will be rewarded with a bigger 401K balance that will replace all or part of your paycheck.
FREE Financial Advice!
You will be able to ask a Fee-Only financial advisor your most presssing financial and retirement questions -- for FREE!
You will be able to do this through the NAPFA and Kiplinger Facebook pages or through the chat box in the link above.
You can also dial into a toll-free hotline to speak with a volunteer advisor. That number is 888-919-2345.
I have had over 30,000 views on this one blog post and so I took the time to expand it into an ebook,
Click on the link above and please "Like" or review it on Amazon. You are going to love it!
