3 Biggest 401(k) Mistakes

3 most common 401(k) investment management mistakes

I have been an investment advisor for over 27 years.  It is no secret to anyone reading this column that the financial world has changed dramatically over that time.

It is astonishing to me that the mistakes I see individual investors making in the management of their Minnesota company 401(k) accounts.  These common mistakes most time fall into the following three categories.

The first mistake is not taking the time to be aware of “what they own now” in their company retirement plan account. Many of the new prospects I talk to about providing retirement plan advice don’t even have a clue about their current investment holdings.

These retirement plan participants don’t remember the names of the mutual funds they own.  They also can’t tell you what kinds of stocks and bonds these mutual funds own.
Most importantly, they don’t know that several different mutual funds can own the same kinds of stocks at the same time.

The second mistake I see is that company retirement plan participants think that they have the financial expertise to make the right investment decisions in their company retirement plan account.

In truth, the vast majority of individual company retirement plan participants don’t have the necessary investment knowledge and experience. Even if they did, the day-to-day gyrations in the stock market take much more time to monitor than most company retirement plan participants can commit to.

When you car needs repair, you take it to an automobile dealership.  When you don’t feel well, you go do the doctor.  In a world full of specialists, investment management decisions should fall into the same category.

The third biggest mistake I see in talking with hundreds of company retirement plan participants over the years is that they think they have to remain 100% invested in the stock market at all times.

As I have written about in this space before on several occasions, the “buy-and-hold” mutual fund myth has cost individual company retirement plan participants upwards of 40% of their company retirement plan value twice in the last three years.

When you go to the casino to gamble, the casino wants you to “play every hand” you possibly can.  The reason is that the more times you gamble the better odds the casino has to eventually take all your money away.

The stock market many times is the same way.  If you stay in the stock market 100% of the time, the better the odds are that you will be fully exposed to stocks at the top of the next economic or stock market cycle.

Ric Lager
Lager & Company, Inc.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Christie Hartshorn November 22, 2011 at 12:44 PM
Your post was very informative and I really enjoyed it. I hope you don’t mind me sharing a quote from my related blog post that I just put up this week… For most individuals, it is best to ride out the storm. As previously stated, many financial experts expect the economy and the stock market to bounce back. This has happened in the past. It may take five years before it is fully back on its feet, but it will happen. If you are in your 20s, 30s, or 40s, you can weather this storm. The stock market will improve before you need to retire. The stocks you invested in should increase. Depending on when you need to retire, you may not make a lot of money, but at least you will recuperate your current losses. Feel free to check out the full blog post on my related blog over at http://www.annuitystraighttalk.com/
Ric Lager November 22, 2011 at 03:28 PM
Thanks for your kind words. You can surely quote material from this blog post. Please make sure you relate that you found the material on the Golden Valley Patch web site. Ric Lager Lager & Company, Inc.
John L. February 24, 2012 at 03:57 PM
Vague advice at best and point # 3 is suspect... I'd love to see some evidence since everything I've ever seen would indicate that buying a quality fund and holding beats 98% of the "pickers" 100% of the time. Of course there's always that 2%


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