Setting up retirement plan contributions and choosing investments is the first step toward saving for your future. There are, however, mistakes that can derail the best retirement aspirations if investors are not careful.
Not knowing your personality.
When it comes to investing, knowing your personality is the key to maintaining any strategy. Picking investments based solely on what friends, coworkers, or family members are using is not typically a wise idea. Those individuals may have a higher or lower tolerance for investment risk or have different investment goals.
To pick the best funds for you, first decide what type of investor you are—conservative, moderate, aggressive or some combination—and chart a course based on solid information. There are plenty of investor tests available online that will lead you toward a more appropriate spread of your investment dollars.
Ignoring your account.
You've picked your contribution percentage or dollar amount for your retirement account, and you've decided on funds you feel best suit your needs.
Your job is done, right? Wrong.
Investors should review their account at least once a year to make sure they are appropriately invested based on their needs. With market fluctuations, certain portfolio sectors could increase or decrease, throwing off a carefully crafted investment mix. Set a date to review individual fund balances to ensure that the percentages have not over- or under-weighted a particular area of the portfolio. Using the quarter end as a reminder will help keep this from falling off of the to-do list.
Guessing at a contribution amount.
Many 401(k) investors choose an arbitrary contribution amount. Make sure to contribute enough to at least receive the full company match.
An even better idea: calculate your own retirement needs and choose a contribution amount based on reaching that number. If it is too much of a stretch to increase to the necessary percentage or dollar amount, establish dates in the future to make the increase. Use your anniversary date with the company or your birth date as a reminder.
Being uninformed about your plan.
Plan sponsors make updates to retirement plans regularly—some changes are in the investment options available, some in the plan rules or types of contributions that can be made (such as adding an after-tax option). If you are not paying attention, you could miss out on important opportunities for a long-term strategy.
If you don't know what's available in your plan, don't sit back and wait for someone to spell it out. Check out your benefits website for detailed information and the latest updates. If the information isn't readily available on a statement or website, ask a benefits officer for more detail.
Letting news define your investment strategy.
Some headlines can be inflammatory and shouldn't be used to set a retirement approach. With such an influx of news, it can be difficult to keep emotions in check when it comes to saving. The best approach is to create a long-term strategy based on personal goals, tolerance for risk, and availability of investments. Then stick to your plan. Make changes to the strategy only if goals change or the risk level isn't working with your comfort level.
There are plenty of ways to reach confidence with a retirement strategy. Learning from other's mistakes will set you ahead and on the right path.
This post is part of Smart401k CEO Scott Hollsopple’s contribution to the U.S. News & World Report Smarter Investor blog series. To view the original article, click here.