You know the importance of strengthening your 401(k) for your retirement. But what you might not be aware of are the costly mistakes that many people make when investing in their 401(k). We certainly want to help you avoid short-changing your 401(k) – if not destroying your 401(k) altogether. Take a look at what we see as the most common 401(k) investment mistakes.
Top four 401(k) investment mistakes
Panicking over what’s going on in Washington
That’s pretty easy to do when your morning news and online media shout at you constantly about impending disaster in the financial markets. We’re all plugged in nearly constantly. If you’re getting a steady stream of ‘the sky is falling’ panicked messages, you may be tempted to panic yourself, and cash in your 401(k).
We’ve had nearly 300 years of upheavals and leveling out in the U.S., including world wars, depressions, financial crises, and other shifts in the economic outlook that have frightened investors over that time. The reality is this: there is always going to be something. If you worry over short-term blips, and give in to your emotions, you will make knee-jerk reactions that can tempt you into cashing out or investing less. This will surely hurt your 401(k).
Cashing it in when headlines worry you is a most regrettable 401(k) investment mistake. Because when the skies clear, you’ll be left with a damaged 401(k). Other people who sat tight and listened to their financial advisors, will continue on their strong 401(k) course.
Lack of diversification
Most people are not aware of how to properly diversify their 401(k). Even if you’ve done a good job of educating yourself about investing and think you can handle your own 401(k), having no professional background in financial management can cost you. Plenty of information about 401(k) investing is available online, but understanding it all can be a challenge. Your professional financial manager will have a stronger understanding and can make all of the information clearer to you. This will help you properly diversify your 401(k) for your financial advantage down the road.
Not taking advantage of your 401(k)
We’re all living longer and pensions are not always available. Social Security might not be available to you in the way you expect, for as much as you expect. So it’s vital to understand your 401(k) and put as much into it as you can, giving yourself the greatest chances of having more than enough for your retirement.
And the biggest 401(k) investment mistake: letting your emotions rule your decisions
It may not be news out of Washington or news of foreign markets that scares you. You might get bad advice from a well-intentioned friend or relative. You might wake up one day in a sweat, gripped by enormous financial fears that overrule your logic and tempt you to cash out your 401(k). Read on to find out the best way to battle this particular 401(k) mistake.
What We Recommend:
Put as much as you can into your 401(k)
Know the actual dollar amount in your 401(k) and what you can contribute. Make it a goal, and commit to it. Even if you have a weaker 401(k), it’s still a smart move to contribute to it fully. You get a tax-deduction for your contributions.
Consider hiring a financial advisor
You get an experienced professional’s knowledge of all things 401(k), and you get a disinterested 3rd party who can help you calm down in the face of those stressful financial messages bombarding you all day in the media, and who can help prevent you from making costly 401k mistakes due to your emotions. Emotions are the biggest threat to your 401(k), and your financial advisor advantage will help you manage your emotions so that you don’t make financial mistakes on your own. Consider your financial planner to be the voice of reason, a voice of reassurance, a wise guide in your path to a better retirement.
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