5 Retirement Investment Decisions Generally Not Recommended

Retirement investment is an area of confusion for many. Many employees have a 401k through their employers but don't know where to put the funds or when to retire. Some make poor decisions regarding withdrawals from their plans or by waiting late to start investing. Investing for retirement is important, and making contributions to a qualifying plan through an employer or your bank is a good first decision. Starting somewhere is important. Be sure, though, not to fall into the trap of these common mistakes:

1. Variable Life Annuities

Unfortunately, if you visit a financial adviser to talk about investing for retirement, she will often push a VUL on you. These are poor investments with high fees and no tax benefits. Insurance should not be a savings tool. Insurance is to protect your dependents when you die. Using life insurance as an investment is expensive and will set you back on your goals.

2. Early Withdrawals

In bad economies, it is easy to tap that 401k when you are short on cash. This seriously hurts your retirement goals. Taking out money early will cost you a ten percent penalty; plus, you will owe taxes on that money. Plus, your money will not be growing the way it should to ensure you are secure at retirement age. It is easy to take money from your accounts, but when you are retired, you will wish you hadn't.

3. Being Too Aggressive

If you are within five to ten years of retirement, your funds should be conservative. You should not be making high-risk investments with your retirement funds. Most of your money should be moved from stocks to bonds or money markets. You should have these choices in your current individual retirement plan.

4. Being Too Conservative

If you are far from retirement, you should be aggressive in your investing. Stocks go up and down. There is plenty of time for your portfolio to recover if the stock market takes a turn for the worse and you are in your twenties or thirties. Being aggressive will give you better returns in the long run.

5. Panicking over the Market

Stock markets are cyclical. There will be ups and downs; that is a fact. If you are a wise investor, you will continue to contribute when the market is down. Because of dollar-cost-averaging, you make out great when you contribute in a down market. This means that if a share cost one dollar a month ago, and now it costs fifty cents, you can buy two shares of that stock for the same price you could get one share for previously. When the market goes back up, you are not only gaining back what you lost originally. You will double that money you just invested. These are common mistakes in a poor economy: people feel they need to close their accounts, or they stop contributing out of fear. However, it is really a great time to contribute and get ahead.

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