Stephen McKee, editor of Selections and Timing, explains five common risks that investors take when managing their 401(k) accounts and how to avoid them.
As individuals make investments for their retirements, it is easy to make mistakes and end up maximizing their risks. In this profession, we see it all. Is it possible that you could be making one or more of these mistakes?
Here are some of the more common “uh-oh” problems to avoid when investing in your 401(k):
1. Over investing in company stock: Just because employers offer it, does not mean 401(k) investors have to put a large sum of money into company stock! Unfortunately, there are many risks when it comes to investing money. Anything over 20% may be too much, and not be worth the risks.
2. Making too many high-risk investments: An aggressive investment attitude can be a double-edged knife. It is very common that investors use large amounts of their 401(k) in the naturally higher risk selections of their options available. This could be beneficial, but these investments are risky.
3. Spreading too much money across low-risk investments: As mentioned before, aggression in the investment world is double-edged. On the other end of this knife, having a lot of money in conservative investments creates risks for investors. Slowly growing investments may not reach investment goals before time for retirement.
4. No contribution level interaction: It is common for investors to set their 401(k) contribution levels and then leave them alone. Yes, the level can be set at the desired maximum matched amount. This also means collecting that free money. So what is the issue? This free money may not fund their retirement.
5. Bumming from your future: Taking a loan from a 401(k) plan may sound ideal because it is speedy, offers low interest rates, and no lenders are involved. There are many more factors to consider. For example, many plans will not allow additional contributions until the loan is repaid. If contributions can’t be made, the fund is not growing. Also, if the investor leaves their job, the loan is expected to be paid
