The recent economy has created an opportunity for learning for all investors. Despite the access to quality 401k Investing Advice, many investing mistakes have been made that could have been avoided. The good news is you now can take advantage of these mistakes of others so that your retirement plan is better protected. Here, are a few of the most popular:
- Loading up on company stock.
This creates a problem where you are increasing your risk to a very high and unreasonable level. You are betting everything on your job and retirement plan on the company and if things go bad, you can lose everything. These employees are the ones who lose the most when the economy goes bad. Part of the blame is the employer pushing their stock on employees where they do not necessarily have the employee’s best interest at heart.
- Fail to diversify their funds among various asset classes.
Diversification is important to help reduce the risk of losses on any one investment class. Although this diversification changes depending on market conditions, diversification is one of the better strategies to help protect investors for long-term investing.
- Fail to check benefits plan for mistakes.
Many people fail to realize that mistakes can easily be made regarding contributions you wanted to be made or how you wanted the assets to be allocated. For this reason, it is a good idea to review your information on the personal benefits statements to make sure your information is accurate.
- Fail to buildup an emergency reserve.
An emergency reserve fund is simply money set aside in a savings account to pay for emergencies like car repairs. It should have about 3 to 6 months’ worth of living expenses in it. The failure of having an emergency reserve causes many people to have to borrow or withdraw from their 401k plan. This measure kills the advantage of compounding and can potentially invoke early withdrawal penalties. You should not invest in a 401k plan until you have established an emergency reserve fund. This is one of the most important rules in 401k investing advice as it provides a base for all your investing.
- Fail to move funds to safer options when bad news starts appearing.
In the two recent recessions of 2000 and 2008, many people failed to act quickly to the bad news appearing in the market. This resulted in greater than necessary losses whether it was due to a lack of appreciation for the impact of the news or indifference. This is one reason why it is so important to keep up to date on the market and how your funds are allocated. 401k participants should not be afraid to move funds to cash investments like a money market fund when bad news starts to appear. This can help safeguard your funds against everything but inflation.
- Relying only on your 401k plan as the sole retirement plan.
This is a dangerous game to play because most 401k plans do not offer enough options for the best gains and diversification. For example, if your 401k plan fails to have an international fund, this creates a potential problem as you will have limited opportunities to protect your 401k funds across the board in times of higher home inflation. Instead, it is a very good idea to make other investment options that can supplement and support your existing 401k. In this case, you should consider investing in other investments that allow you to potentially have access to an international fund. Other retirement plan options can range from investing directly in stocks, or mutual funds, or using IRAs, Self Directed 401ks, or Roth 401ks or Roth IRAs.
By avoiding these common investing mistakes, you can help increase the odds of making good decisions. The best 401k investing advice will always be to learn from the mistakes of others so that you will not make the same mistakes in your own investing.