401k Mistakes You Need to Avoid!
Pauline R. from Destin, FL asks: Hi Mitch, I just started a new job that offers several new 401(k) investment options, some of which are “target date funds” that match my retirement year. Before this, I worked at DuPont (Dow Chemical) for 25 years and grew my 401(k) with company stock and a mutual fund a co-worker recommended. My question is – is it worth putting everything in the target date fund and just calling it a day? I’m not sure I have the time or the ability to research all of these new options.
Thanks for writing, Pauline. With 25 years at DuPont I’m sure you’re getting closer and closer to actually retiring, so this is a great time to be asking these types of questions. I have several pieces of general advice for you, and I’m just going to number them below so you can walk through them one-by-one – in a checklist sort of fashion. Here they are:
- Have you considered rolling your old 401(k) into your new 401(k) plan? You’d need to check with DuPont and your new employer, but a quick phone call with Human Resources/your retirement plan administrator should do the trick. Most 401(k) plans allow you to roll a former 401(k) into a new plan. I like this approach because your retirement plan assets are nicely combined in one place so that it’s easier to manage and diversify properly. I personally like keeping everything together when possible.
- Make sure your portfolio is diversified! From the sounds of it, you may have too much DuPont/Dow Chemical stock? Based on the way you asked your question, it sounds like a high percentage of your 401(k) is invested in one stock. As you get older, this becomes a high-risk approach that is probably too high for someone nearing retirement. Sounds to me like an early step for you is going to be trimming back some of your DuPont stock and trying to build a more diversified portfolio that suits your age, investment objectives, and risk tolerance.
- Target Date Funds are useful, but I think you can do better. Target date funds are generally only based on your age but do not take into account other important investment factors like market conditions, your risk tolerance, your income needs, and so on. Target date funds, in my view, are a bit too cookie cutter for a financial situation that is probably more complex. You mentioned there are several other investment options available in your plan, which sounds to me like your 401(k) investments can be customized to better suit your goals and objectives.
- Ask for help! I’m glad you emailed me, but why stop here? If you need more help, I recommend reading our Retirement Guide.1 My team and I developed this guide to help people nearing retirement determine their long-term goals, risk tolerance, investment time horizon and other factors that make up your financial situation. At Zacks Investment Management, we don’t offer ‘cookie cutter advice’ to our clients. Instead, we design customized investment portfolios based on your individual needs. Likewise, this guide is designed to help you look at your unique retirement needs and financial situation. So, if you have $500,000 or more to invest, this guide could help you take the necessary steps to reach your retirement goals. Click on the link below, to get your copy today!
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.
Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual