5 Most Common Mistakes of 401k Portfolio Management

• 401k retirement plans can be a great way to save for your retirement.
• 401k planning is essential for your retirement needs.
• Avoiding common 401k planning mistakes can help you minimize risks and maximize the potential returns.

401k retirement plans can be an important part of your retirement savings, and there are some common mistakes made with these investments that can financially cost you, and even make it impossible for you to retire when you want to. Knowing what these mistakes are and how to prevent them can keep you on track to retirement when you want to take it, not when you can finally afford to. Effective 401k planning is the key to a retirement and lifestyle that you have always dreamed of, so managing these investments wisely is crucial to your future plans and goals.

1. Not Taking Advantage Of Employer Matches

One of the biggest and most common mistake that employees make with their 401k retirement plans is not taking advantage of the maximum possible employee match. Many companies will match the contributions an employee makes to their 401k plan as long as the 401k regulations allow it. Make sure to invest the maximum amount needed from your pay to be eligible for the most employee match funds. These matching funds are free retirement funds, so take advantage of them to boost your retirement savings and interest earnings. Many employees do not contribute the maximum amount, and so they miss out on free money from their employer. This is a common mistake, and a very costly one.

2. Failure to Allocate Assets And Be Well Diversified

Small business retirement plans and other 401k plans intended for retirement are funds that are meant to cover your future expenses. Because of this these funds should be managed somewhat conservatively, so you do not lose your entire nest egg because of one mistake. Diversification and asset allocation in your 401k retirement portfolio can help prevent large losses, and keep your capital from being wiped out and vanishing due to the market performance. Your portfolio should contain a diverse mix of assets. This offers protection if the market goes south in some sectors, because a well diversified portfolio will include many types of investments. When one area of the market is doing poorly others are doing great, and this should even out the performance of your portfolio and prevent catastrophic losses of your investment capital.

3. Owning Large Chunks Of Company Stock

401k planning is an important part of your retirement planning. One big mistake that many investors have learned painful and financially costly lessons from is to have large blocks or amounts of company stock in your 401k portfolio. It is a good idea to own some company stocks, but remember to keep your portfolio well diversified. A good rule of thumb is to own no more than twenty percent of your portfolio in company stocks, to protect your investments and your future. As the market has shown in the last year, even companies considered solid and blue chip can crumble and come falling down. Look at Bear Stearns and Lehman Brothers. It is a god idea not to put too many of your retirement eggs in the same basket, or stock.

4. Being Too Conservative Or Aggressive With Your 401k Investment Portfolio

If you are considering 401k planning, it is important to strike the right balance with your investments. Being too conservative will cause you to receive lower returns on your investment, and can have a big effect on the final balance in your investment portfolio. On the other hand, you want to use caution when utilizing 401k planning. Being too aggressive with these funds can cause you to loose everything, and end up not being able to retire. You must find the right balance between conservative and aggressive to maximize your returns while minimizing the risks of losses.

5. Not Participating In Available 401k Retirement Plans

The most common and biggest mistake you can make with 401k retirement plans is not to participate at all, yet this mistake is made every day by hundreds of people. If you do not participate in the 401k plans offered by your employer, you will never have a retirement portfolio to help with costs and expenses during your retirement.

Sources:

http://articles.moneycentral.msn.com/Investing/MutualFunds/The5biggest401kBlunders.aspx

http://articles.moneycentral.msn.com/Investing/MutualFunds/The5biggest401kBlunders.aspx?page=2

http://www.maxoutsavings.com/common_401k_mistakes.html

http://www.marketwatch.com/news/story/5-biggest-401k-mistakes-how/story.aspx?guid=%7BD49E82C6%2D771D%2D4DFE%2DA31F%2DEB3B33F9B285%7D

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.