When Your 401k Investment Advice Is All Wrong

Most people rely on a 401k for retirement, but what do you do if you’ve received bad 401k investment advice? The problem is that most plan providers can only offer you general advice, so finding advice is pretty much on your shoulders. Here are some ways to recover if you’ve received bad advice, and ways to invest in a profitable way in the future.

How Much to Invest

The amount of money you invest in your 401k should be a reasonable amount. Many people lose money because they invest less than the amount their employer matches. If someone has told you to invest 3%, but your company matches 5% then you are essentially losing free money. While it’s rare to find a company that will match that high, you should invest at least up to the matching amount from your company. You should be able to afford an extra percentage point or two. You can easily recover from this bad advice by increasing your contribution now.

Investing Diversity

Most people don’t understand the ins and outs of a 401k program and end up investing too little or too much. If you have been advised to invest a lot, as in more than 20%, of your investments in the companies stock you need to change this. While most of us have some pride in regards to the companies we work for, this kind of investment can be dangerous. It’s ok to invest in company stock, but no more than a few percentage points. Look at some of the trouble people have gotten themselves in to when their companies go under. Their 401k’s lose valuable money. If you play everything completely safe and place nothing in stocks this is another big mistake. While in most cases playing it safe is, well, safe, your 401k should have some diversity. It’s ok to have some in high risks, just not a lot.

Invest While You’re Young

Many people assume that they are only in their 20’s, so they have plenty of time to think about investing. The truth is, if someone started investing $350 a month in their 401k at the age of 25, assuming an average annual return or 8%, that person would have more than a million dollars at the age of 65. If this same person waits until they are 35 that amount goes down to $453,000. This is less than half of what it would have been by starting young. It’s best to start investing in a 401k as soon as it’s available to you. If you have children that are working age, instill this concept in to them!

Most often we can change our 401k plans to make up for any bad advice we may have received. Taking time to understand how a 401k plan works will help you to greatly increase the amount of money you will available at retirement.


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