You know the importance of strengthening your 401K for your retirement, but what you might not be aware of are the costly mistakes that many people make with their 401Ks. We certainly want to help you avoid short-changing your 401K – if not destroying your 401K altogether, so take a look at what we see as the most common 401K investment mistakes.
Top four 401K 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, so 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 401K. 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, and the reality is this: there is always going to be something. If you worry over short-term blips, and give in to your emotions, making knee-jerk reactions that can tempt you into cashing out or investing less, you will surely hurt your 401K. Cashing it in when headlines worry you is a most regrettable 401K investment mistake. Because when the skies clear, you’ll be left with a damaged 401K while other people who sat tight, listening to their financial advisors, will continue on their strong 401K course.
Lack of diversification.
Most people are not aware of how to properly diversify their 401Ks. Even if you’ve done a good job of educating yourself about investing and think you can handle your own 401K, having no professional background in financial management can cost you. Plenty of information about 401K investing is available online, but understanding it all can be a challenge. Your professional financial manager will have a stronger understanding of it all, and can make all of the information clearer to you, to help you properly diversify your 401K for your financial advantage down the road.
Not taking advantage of your 401K.
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 401K and put as much into it as you can, giving yourself the greatest chances of having more than enough for your retirement.
And perhaps the biggest mistake: letting your emotions rule your 401K 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 401K. Read on to find out the best way to battle this particular 401K mistake.
What We Recommend:
Put as much as you can into your 401K.
Know the actual dollar amount in your 401K, and what you can contribute. Make it a goal, and commit to it. Even if you have a weaker 401K, it’s still a smart move to contribute to it fully. You get a tax-deduction for your contributions, even if you do have a weaker 401K.
Consider hiring a financial advisor.
You get an experienced professional’s knowledge of all things 401K, 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 401K, 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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