Feb. 22, 2018
Over the past few weeks, the stock market has been unpredictable. Understandably, many people feel fear when the stock market takes a dip, because the 2008/2009 recession is still strong in our collective memory. Still, they shouldn’t. .
Panicking and selling your investments is one of the five mistakes that could destroy your retirement savings. Here’s why:
Mistake #1: Panicking & Selling
Panicking and selling your investments is probably the quickest way to destroy your retirement savings. While stock market fluctuations happen, the overall trend of your investment returns over several decades should be positive (although nothing is guaranteed.)
Panicking isn’t detrimental only when it comes to the stock market. It’s also something to watch out for during stressful periods in your life. For example, if you’re experiencing financial difficulty, like crushing debt loads, it might be tempting to turn to your retirement funds for help. However, that brings me to the next mistake:
Mistake #2: Taking Out a 401(k) Loan
Many people understand the risks of withdrawing money early from their 401(k) retirement plans, including the penalties they’ll incur if they withdraw money prior to retirement age.
However, what’s tempting to many people are 401(k) loans. The reason is that these loans are relatively easy to get. They require no credit check, you can get the money you need in just a few days, and you can arrange it so that your payments are deducted from your paycheck.
The problem with a 401(k) loan is that if you don’t pay it back, it’ll count as an early withdrawal and thus, would be subject to early withdrawal penalties. You’re also taking your money out of the market and using it, which means it’s not earning interest.
Some people justify this loan because you’re borrowing from yourself, but the risks are too great. Plus, if you lose your job, you’re required to pay back your 401(k) loan within 60 days. That can be a problem for many people who used a 401(k) loan because they were short on cash. For all these reasons, taking out a 401(k) loan is a risky mistake when it comes to your retirement savings.
Mistake #3: Not Investing Enough
Retirement seems like something that’s light years in the future. (So does moving your child into their dorm room at college.) The fact is, though, life moves pretty quickly. Everything that you thought was far off will be here sooner than you think.
It’s not a secret that the earlier you save for retirement, the better. Take the time now to do a thorough review of your expenses. Even adding $100 – $500 a month in retirement contributions could mean a difference of thousands of dollars in retirement savings at the end of your career. If you track your spending and notice you’re spending a few hundred dollars in “extras” every month, try scaling back a bit.
In fact, Tim Hong, CMO of MoneyLion, says one of the biggest investing mistakes that people is “prioritizing other savings over your own retirement.” One example he gave is “saving for your child’s education is important, but shouldn’t be prioritized over your own retirement.” If you keep this in mind your future self, who’ll be able to retire with confidence, will thank you.
Mistake #4: Listening to Hot Tips
Your brother says he’s a bit of an expert in emerging technology stocks. Your boss swears by Bitcoin. Your friend says it’s more important to invest in her invention, which could make you millions, than it would be to put your money in the market.
Listening to hot tips like this can destroy your retirement savings. What’s better is to be an investor who is willing to learn about the process. Take the time to identify the best personal finance books available. Read how to diversify your investments. Understand the difference between a stock and an index fund.
And, if you need further help, seek the advice of a financial advisor who actually has your best interest in mind, rather than someone who is trying to hard sell you on insurance products.
Mistake #5: Paying Too Much in Fees
Do you know how much you’re paying in fees when it comes to your retirement accounts? If you have a work sponsored retirement plan, it might be difficult to change providers. However, if you are paying fees to a financial advisor or have other investments accounts, take the time to do a fee audit.
According to recent research by the Pew Charitable Trusts, 31 percent of respondents “were not at all familiar with the fees” on their retirement plan.
If you don’t know where to find information about your fees, Consumer Reports reported that “401(k) plan sponsors are required to send participants annual disclosures outlining fund fees and their effects on savings over time.” Take the time to review it so you know whether or not you need to make changes to your plan.
Ultimately, the success of your retirement years relies on you, so be sure to avoid the mistakes mentioned above all while taking the time to become as educated as possible about investing in your future.