3 401(k) Mistakes Investors May Not Realize They’re Making Right Now

There is a lot of uncertainty with the markets, the economy, and even in our personal lives. Now more than ever, the more informed you are, the better decisions you can make for your financial future. Keep reading for the top 3 401(k) mistakes investors may not realize they’re making right now. 

#1 Assuming Your Employer Is Taking Care of Your 401(k) for You 

401(k) mistakes investors may not realize they’re making right now

One 401(k) mistake investors may not realize they’re making right now is the assumption that their employer is taking care of their 401(k). 

401(k) mistakes investors may not realize they’re making right now
 It’s up to you to make sure you know what’s going on with your 401(k) investments. After all, it’s your money and your financial future. 

However, too many investors sign up with their employer’s plan and are not sure what they’re investing in. 

They simply set it up to contribute to their 401(k) each paycheck, and that’s that.  

At 401(k) Maneuver, we hear from a lot of people that no one ever spoke with them about their plan. They are mailed a packet when they enroll, and are left on their own to figure it out. 

The result is that many investors assume their company is taking care of their 401(k) for them, and don’t reach out to a third-party expert for help

This belief not only disconnects you from your money, but it also potentially keeps you from maximizing your 401(k) retirement savings

It’s not uncommon for an employer to automatically enroll investors in a target date fund , give them the plan welcome packet, and send them on their merry way.  

In fact, Marketwatch reports, “About 70% of U.S. companies automatically enroll employees into 401(k)-type plans, and more than 86% of these firms now direct people’s money by default into ‘target-date funds’ (TDFs).”¹

Our advice is simple: get engaged with your 401(k) right now. Become an engaged investor. 

Read books or listen to podcasts on the topic. 

Or watch our 401(k) Masterclass Video where we walk you through the 3 strategies that may supercharge your 401(k) performance.  

#2 Not Contributing to Your 401(k) Right Now 

401(k) mistakes investors may not realize they’re making right now

With recent market volatility and economic uncertainty caused by the COVID-19 virus, many 401(k) investors are asking if they should stop their 401(k) contributions right now and stash cash. 

The economy was strong, unemployment was at historical levels, companies were doing extremely well, and then suddenly it all stopped. 

The fear of losing money and seeing balances go down is a valid concern. 

But moving money to cash is a 401(k) mistake investors may not realize they’re making right now. 

Stopping or reducing your 401(k) contributions right now may not be in your best interest in the long run

Bear markets can be scary. They cause panic, fear, and a lot of uncertainty. 

While things are uncertain right now, there is a silver lining in all of this: 

100% of the time, every market correction–every bear market–has always come back 100% of the time, and there’s no reason to think this time will be any different.

Check out this video where our Chief Investment Officer at 401(k) Maneuver, Mark Sorensen, explains what’s happening in the markets, why you should be patient, and why–contrary to what the news will tell you–you should be excited.

 

#3 Failing to Make Changes to Your 401(k) Investments

401(k) mistakes investors may not realize they’re making right now
Contrary to what some investors believe, a 401(k) plan is not a “set it and forget it” program.

Because of this belief, few people rebalance their 401(k) accounts, and even those who do fail to manage risk through proper asset allocation.

401(k) mistakes investors may not realize they’re making right now
Failing to rebalance is a 401(k) mistake investors may not realize they’re making right now.

If you aren’t rebalancing your account allocations , you may be missing out on earning more and keeping more of your hard-earned retirement savings

Why? 

Because unmanaged allocations may experience much larger losses in down markets and may miss the opportunity for growth during good markets.

Morningstar conducted a study that monitored the top 100 best-performing mutual funds between January 1, 1998, and December 31, 2013. 

This study revealed that, in any given year of top best-performing 100 mutual funds in any of those years, in the next year, about half of the time, 8 out of 100 remained in the top 100 the very next year

This is why a set-it-and-forget-it strategy is not always advantageous.

We recommend rebalancing your account allocations every quarter, or four times a year

This way, you can make the appropriate changes in order to stay on course with your savings goals.

401(k) mistakes investors may not realize they’re making right now

Sources:

  1. MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
  2. “Over 90% of Americans make this 401(k) mistake”, Mauri Backman, The Motley Fool
  3. David Blanchet, Morningstar Analyst 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”
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401(k) Maneuver™ is offered by Royal Fund Management, LLC, which is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Royal Fund Management, LLC, is not affiliated with or endorsed by NASDAQ.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. There are no assurances that a client’s portfolio will match or outperform any particular benchmark. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. Projections are based on assumptions that may not come to pass.

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