Picking the right 401k plan is an important step in the right directions when entering into the business world. You need to be careful though, because there are numerous ways you can mess up your 401k. Some of these things include not investing properly or buying at the wrong time. These rules apply to those who are experienced and those who really don’t know what they’re doing. Hopefully we can help you identify some of the ways that you can avoid the most common mistakes people make when setting up their 401k.
The first ways people can mess up is to not take advantage of their employers 401k plan. There are very few disadvantages to an employer 401k plan. Not using these plans can only hurt you and your family in the long run. When you take advantage of these plans make sure you invest the entire amount an employer will match. When you don’t take advantage of the full amount given by your employer you’re essentially missing out on free money. People occasionally don’t meet the amount because they’re afraid they can’t afford the added expense. They don’t seem to understand that it’s usually only a few dollars a month, so it’s worth it in the long run.
One of the other big mistakes people make is not taking enough risk. It’s understandable that people don’t want to risk their own money, but when it comes to long term investing these risks usually pay off better than playing it safe. However, it’s not wise to take too many risks, or too big of a risk. You need to understand that there needs to be a middle ground between risk and conservative. You need to make wise decisions and follow market trends to ensure that the risks you make are the right ones.
Retirements – Getting Started & Next Steps
Another mistake that a lot of people make is investing too much of their 401k money into their company stock. One of the best examples of this is what happened to Enron. When this happened a lot of their employees lost practically their entire life savings. You should keep around 10% max in your own companies 401k. You also need to avoid taking loans out on your 401k as it’s generally a bad idea. If you fail to pay off the loan you can lose your entire 401k and that’s devastating. It is highly recommended that you avoid this as much as you can.
One finally mistake that people make is cashing out their 401k when they leave their job. You can possibly take on large fines when doing this and you lose the interest that you would have made if you left the 401k alone. As long as you avoid these common mistakes you should be fine.Why Resources Aren’t As Bad As You Think