Perhaps not right now, but at some point, you're going to have to survive on the dollars that are stashed away in your retirement account. That 401(k) is fun to watch when you're in your early working years because it doesn't seem like it's real money. It's just a paper statement that arrives every month with a whole bunch of numbers on it that usually gets thrown into a drawer.
But as the years fly by, reality sets in and it suddenly dawns on folks that one day they're actually going to need that money. That's when people start paying a little more attention to what's really happening with the numbers on their retirement plan statements. Since you really don't have immediate access to that money (without incurring penalties, that is), it's easy to lose sight of what this fund is designed for. So, because you can't tap that well until you're really old, you tend to ignore your retirement account and think, "I can't do anything to control my account, so I'll just keep contributing to it and accept whatever I end up with when it's time to retire."
Well, if that's your mindset then you've just committed "Investment Heresy", my friend. What's Investment Heresy? That's when you turn to the vices that could potentially keep you from enjoying a long, happy, worry-free retirement. It's when you casually go about your business while your retirement account gradually goes due south. It's when you accept market conditions without caring how those conditions may adversely affect you in the long run.
Let's stay with that heresy theme for a moment (because it's kind of fun) and take a quick look at what I like to call the "seven deadly sins of retirement mismanagement."
NOTE: By being aware of these seven deadly sins and through proper atonement, you can easily resurrect your retirement account and experience fulfillment in your work after-life. So in no particular order, I'll lay them out here.
Seven Deadly Sins of Retirement Mismanagement
• Pride — You never enroll in your company-sponsored 401(k) plan.
Who needs that company hand-out anyway? You'll be making millions soon so you'll just rely on yourself to sustain yourself in your old age. C'mon, we're talking free money here. And you can’t make money if you don't start putting it away first. If your employer matches your 401(k) contributions, and you're not contributing, you're missing out on a sweet gift from your company. Many companies will match 100% on the first $1,000 or $2,000 that you contribute. So the least you can do is find out if your company matches contributions, and up to what level. Then figure out a way to get at least that much out of your paycheck and into the plan. You’ll thank yourself in the long run.
• Wrath — You set your investments the day you enroll and never change them.
Want to see real anger? Check out those folks who never, ever touched their retirement plan and realized they lost out on something really profitable. It's stunning to see how many people have made this mistake. Remember at some point, you're going to have to live off this money! Make it grow or at least stop losing money! You can make changes to your plan. When an investment isn't working you need to back off and consider another one that will produce more for your bottom line. Again, you're allowed to make changes in your plan! In some plans you can make changes as often as you like. In others there are restrictions. But, generally you can mix it up as you please. So don't get mad...get even!
• Lust — The money market is an option.
Ahh yes, the lust for money markets. OK, it’s true, when nothing seems to be working in your retirement plan (um, remember 2008?) you can move all or some of your money into the money market option. It may be called the “stable value” or "stable income" fund or something similar, but when times are tough it's an option worth eyeing up.
• Sloth — You never open your statement.
It's so disturbing to see how many folks don't open their 401(k) statements. During 2002, the Standard and Poor’s 500 lost 20% in just a few months, then gained 20% back the next year. Sound like a wash right? If you do the math, even if you did nothing at all during that time, you lost money. If you had $100,000 invested and the market dropped 22%, it was now worth $78,000. If the $78,000 gained back 20% you would be at $93,600. A loss of $6,400! The same situation took place a few years later in 2007- 2009. If you don't know when to move your funds then it's time to get some professional help. (NOTE: Balser Wealth Management is one of a few firms in the country that specializes in managing an individual’s 401(k) plan.)
• Gluttony — Feasting on the present is a huge mistake.
I hear it all the time: “I’m long-term.” Or, “I’m doing fine. My account is back to even and rising.” What a load of hogwash. Many folks tell me that they're back to even from 2000 (or close to it). Some are even a little bit ahead. What they don't realize is that most of their “growth” has come from their own money, the cash they contributed to their plan. For instance, say you had $300,000 in your plan five years ago, and it dropped to $195,000. You have made five more years of contributions to your plan. If you are making the maximum contribution allowable under most plans you would have contributed nearly $80,000 of your own money into the plan. So your plan is now worth $280,00 you say? Again, do the math. You might even have been better off sitting in the money market. Since 2000, you would have made less in the market than in the money market.
• Greed — It's all yours, no matter how it's performing.
Most folks never measure how their funds are performing when matched up against the major averages. They just covet that bottom-line number. But the truth is that you’ll never get rich by being average. Just because the market is doing poorly doesn’t mean you have to do poorly too. Most retirement plans have investment options available besides large-cap growth funds. Although they may be limited, you'll likely have international funds, small-cap fund, mid-cap funds and the ever-present money market. Some plans even have a self-directed brokerage account option.
My advice is that you talk with an investment professional who specializes in managing 401(k) plans. They can give you guidance and even help you with re-allotment of the funds within your plan. So in this case, heed the words of Gordon Gekko who said, "Greed is good. But only if you know the score of the game." (OK, I added on that last part, but it's pretty good, don't you think?)
• Envy — You're so in love with your employer that you only buy the company stock.
I know, I know...it's the place that employs you and you think it's the best company on the planet. Well, here’s a tip: Don’t drink the company kool-aid. Remember Enron? Many companies that make matching contributions will make the match in company stock, not cash. If that's your case, find out what the required holding period is for the stock and think about selling it when you get the chance.
By the way, do you get stock options at work? Or are you involved in a company stock purchase plan? Then you already have a percentage of your money tied up in the company, aside from your 401(k) contributions! Think about how much of your investment dollars are tied up in the company.
The Time is Now to Repent
So now that you've confessed your retirement management sins, it's time for your penance. I want you to contribute the max to your 401(k) plan, read your statements, know the market, and seek advice if you need it. Now go forth and multiply those funds!
Roger S. Balser is the Managing Partner and Chief Investment Officer of Balser Wealth Management, LLC, with more than 25 years experience. He works one-on-one with individuals and middle market companies to help regain control of their investment and retirement portfolio(s). Contact Balser at 440-934-3114, firstname.lastname@example.org. Balser Wealth Management, LLC, 36873 Harriman Trail Avon, OH 44011, 440-934-3114, email@example.com, www.balserwealth.com.