GUEST POST: How to Avoid the Biggest Investing Mistakes People Make with Their 401(k)

Elle Martinez

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Published on 07-12-2019

Categories: Articles

Your 401(k) can be a significant piece to your retirement portfolio. However based on the data on how many Americans are participating and how much they’re investing, it is an account that’s not as optimized as it could be.

That doesn’t have to be your case.

This week on the podcast CFS* financial advisor Jonah Kaufman shared some key points investors need to consider when reviewing their investments options with their 401(k).

If you want your 401(k) and other investment accounts to succeed, you need to avoid these common investing mistakes.

Mistake #1 You Haven’t Defined Your Financial Goals

When you’re trying to find which options to invest in, one of the smartest money moves you can make is to step away from the investments and instead focus on the investor - you.

What exactly does retirement mean to you? What lifestyle are you trying to maintain - travel, volunteer projects, downsizing to a smaller home, living nearby grandchildren?

Depending on your answers, your nest egg number can vary significantly.

Knowing your goals can also help you figure out how much you need to contribute each pay period.

When you have an idea of what you’re working towards, you can then use that to build an investing plan that is attuned to your risk tolerance.

With that in place, you can then see what investments offered in the 401(k) go along with the asset allocation that meets your goals and risk tolerance.

Mistake Number #2 You Go with the Default (Without Checking If It’s a Good Fit)

Depending on your employer’s 401(k) plan, the default may be an option that works for you or it may not.

For some plans, you may be enrolled in a target date fund based on your age, you may be put in an actively managed fund (typically with higher expenses), or you may not have your money invested at all.

So take some time to review what the default options are.

You don’t want to be investing in something so conservative that you’re not getting the growth you need to hit your number.

At the same time, you don’t want to be in something so aggressive that you lose sleep over it or you tinker around with your investments.

Some due diligence will allow you to choose investments that fit your risk tolerance and asset allocation.

Mistake #3 You Have High-Interest Debts Weighing You Down

One of the most common questions I get regarding investing is whether or not they should contribute to their 401(k) when they’re dealing with debt.

If you’re trying to figure out your game plan, here are a few things to consider:

  • Does your company offer a match for your contributions? Getting a match for your employer is a fantastic benefit and you may decide to put in just enough so you can at least get that money.
  • How much of your debt is high interest? Higher interest debts like credit cards can really harm your finances and depending on rate, it can basically wipe any progress you make with investing. You may decide to aggressive knocking those debts out is your priority.

 Once you weigh these factors, you’ll be better able to make a decision that suits you and your particular needs.

Ready to Get Your Financial Roadmap

I hope this helps you as you work towards your retirement goals.

If you’re ready to get a financial check-up and have a professional craft a financial plan that is aligned to you and your goals, please check out Coastal’s Wealth Management Services, available through CUSO Financial Services, LP*.

They’re a team of highly talented and dedicated CFS*financial advisors eager to work with you no matter where you are in your financial journey! 


Elle Martinez is the creator of Couple Money, a personal finance podcast and site focused on helping couples get on the same page, dump their debt faster, start building wealth together. 

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor.  Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal.  Investment Representatives are registered through CFS.  Coastal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

 


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