Common 401K Mistakes

Just because you opted for a 401K as your retirement plan, your future becomes any easier. In fact, wrong decisions while investing on your retirement plan may leave you getting smaller amount of money and a little less happy retirement life. Here are some mistakes in investing for 401K that you need to avoid.

Sticking to just one fund – Just because your company offers 401K does not mean you should load all your retirement money into one fund. Diversification is key when it comes to investing, and there are different types of retirement and mutual funds where you could also put your money on.

Investing primarily in company stock – Many publicly-traded companies offer their own stock in the 401K plan, but it can be dangerous especially when the company becomes out of business. Investing in your future should not be done by being loyal to the company but by being prepared of the many possibilities. Company stocks can either be very profitable or very dangerous, because once the company goes bankrupt your retirement savings go along with it (not to mention your job). When investing in company stock, it should only be a small portion of your portfolio, no more than 10 percent. If it is offered at a discount, take it.

Investing in large company stocks – It is a common misconception that stocks from large companies are better than those from smaller companies. Actually, small company stocks outperform large company stocks especially when it comes to long-term investment.

Investing only within your borders – Ever wonder why business news feature stock exchange updates from other countries aside from the United States? That is because many investors also put their money outside the US borders, and it is actually a good thing. Keeping patriotic in your investment could cost you a percent or two in returns each year, especially when the US dollar becomes weaker. Consider investing 30 to 50 percent of your money internationally, depending on the variety of international options in your plan and your own comfort level.

 

Posted by Ardent Editor on Aug 27 2008 in 401k & Company Plans

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