5 Investing Mistakes to Avoid with Your Retirement Portfolio
February 25, 2013
For most “regular” folks, investing is done through a retirement account. Investments in a tax-advantaged retirement account like a 401(k) or an IRA can be a smart move. You see your money grow with the help of compound interest, and it grows even more efficiently since there is a tax break involved.
When your retirement account is involved, it’s common to put your contributions on automatic, and then forget about them. In some cases, workers might not pay attention to what the plan entails. As you build your retirement portfolio, consider avoiding the following 5 investing mistakes:
1. Too Much Company Stock
One of the biggest pitfalls of many employer-provided retirement plans is that a great deal of company stock is often included in the portfolio. This was a problem my dad saw a few years back. If the company runs into trouble, an account overburdened with company stock can lose a great deal of value.
Your retirement account should be properly diversified. If possible, add other investments to the mix, reducing the impact of company stock.
2. Missing the Company Match
There are still some employers that offer their workers a company match. This means that, up to a certain amount, your employer will match your contributions. This is free money that can be used for your benefit. Often, you have to work for the company for a certain number of years in order to be fully vested with the match. Even so, it’s still a good deal. Try to contribute at least enough to get the full company match.
3. Paying High Fees
Unfortunately, some employer retirement plans come with high fees. There might be high-fee funds in the default portfolio, or the plan administrator might be charging quite a bit. In any case, it is worth an examination, since high fees can eat away at your returns.
It’s possible, if your retirement plan comes with high fees, to look into other options. Find out if you can choose funds with lower expenses, or ask your employer to look out for another plan administrator. If all else fails, you can contribute just enough to qualify for your match, and then open an IRA and invest in lower-cost choices.
4. Insufficient Diversification
This goes beyond just investing in company stock. You also need to make sure that you have the right diversification across asset classes (stocks, bonds, real estate, etc.) and even in different sectors and industries. Consider your overall diversification, and change things up according to your risk appetite. A little more diversification with an asset allocation that reflects your needs can protect your retirement effectively.
5. Not Contributing Enough
Along with asset allocation, one of the most important things for your retirement account is the amount of money you set aside. The reality is that, unless you began contributing to a retirement account (probably an IRA) with your first job as a teenager, $100 or $200 a month just isn’t going to be enough to build a nest egg. Consider strategies for boosting your retirement account contributions so that you know you will have enough.
It’s also possible to find ways to create a variety of income streams to help you sustain a set income in retirement. With a combination of strategies, you should be able to create a retirement that is more comfortable for you, maximizing your gains and minimizing the money leaks.
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