Over the years you begin to see a pattern of mistakes that people make with their 401ks. Considering that upwards of 66% of current workers retirement income will come from their savings, I’m amazed that people don’t pay more attention. So here goes… the top 10 mistakes I see people make in 401ks or 403bs:

  1. They pick a bunch of funds when they get started, and never revisit, re-balance, or alter their holdings in any way from thence forward. Out of sight, out of mind.
  2. They choose to invest in the top performing funds available at the time of their enrollment. Because this is usually done when they are initially hired, it doesn’t account for trends such as a dot.com bubble.
  3. They fail to diversify across multiple asset classes. See number 2. I have seen a lot of investors that started investing in the 90s and never stopped investing in growth stocks. In more recent times, the same applies for international stocks.
  4. They leave them with former employers, accentuating their mistakes in lack of management.
  5. They ignore fees. Over time, fees can have a big impact on returns.
  6. They manage too much. This is the opposite of number 1. Some people just choose the top performers from last year, and are constantly chasing returns. The problem here is that this investment philosophy usually buys high when things are hot, and sell low when things are not hot. It is not a disciplined long term investment philosophy.
  7. They don’t save enough. If the majority of your income in retirement is going to come from your savings, most of you had better be putting at least 15% away.
  8. They don’t take advantage of the match. If your company is going to match, it might not be a bad idea to at least save up to the match. If the plan is bad, you can put your other savings elsewhere.
  9. They never sign up. Many people say they aren’t signed up because they know it’ll take away from their current paycheck, and they are living paycheck to paycheck right now. Try having to work when you are 80 because you need the money. Unfortunately, I’ve seen it.
  10. They invest too much in the company stock. While this doesn’t occur too much after Enron, it can be fatal to your retirement goal, especially if you are anywhere near retirement. The same can be said for investing too much in one particular fund.
So there you have it. What are some other mistakes? If you are doing any of these, consider finding an objective fee-only NAPFA Registered Financial Advisor to review your 401k or 403b allocation and retirement plan. It could pay big dividends in the end. Pun intended.