Are you flushing money down the toilet in your 401(k)?
The short answer…you might be. This article will focus on saving money that is already yours.
Here are four ways you may be giving your 401(k)bucks the flush:
I’ve written about 401(k) matching funds before. This is probably the biggest free money flush I’ve seen. I see so many participants that do make a contribution, only it’s not enough to receive the full match from your employer. If you boss offers 50 cents on the dollar up to 6%, then make sure you contribute the full 6% to get all that free moo-lah. Think of it this way, it’s a foolproof way of getting a 50% return on your contribution before it ever gets invested.
If you aren’t getting the full match, increase your contributions by 1% every 6 months until you get there. Plus, you won’t notice the difference in your paycheck. Don’t watch this free money swirl down the toilet!
Most participants have no clue what they are paying for their 401(k) investments. Don’t feel bad. Employers don’t have much of an idea either. Don’t get me wrong, all plans and their investments have fees. Just do a little research to understand the plan fees.
The good news is as of 2012 plan providers are supposed to disclose to the employer and participants exactly what you are paying. If you’re not happy with the plan’s expenses, talk to your employer about alternative choices or making some changes.
Many of the 401(k) accounts I review have way too many or too few investments in them. So review your allocation with an advisor and decide if you can get good diversification with fewer investments. On the flip side, some participants buy one investment based on performance. This could hurt your 401(k) when the next market correction comes. It could also be a higher cost fund that all of your money is sitting in.
Of course I’m going to tell you to seek advice! I’ve come across few 401(k) investors that do a good job over long periods of time. Watching CNBC and checking your account multiple times a day does not make you astute investor. Reacting every time there is a negative (or positive) headline is also recipe for flushing your returns down the 401(k) toilet.
A good 401(k) advisor that is also a Fiduciary, (that’s someone required to do what’s in the best interest of the participant), can help you put together a good 401k portfolio. One that is low-cost and appropriate for your risk tolerance. Seek one out to help you maximize what you are doing.
Don’t watch your 401(k) swirl down the pipe! If you’d like a free review of your 401(k) account, or give me a call at 859-225-2596.