Valentine’s Day puts a lot of focus on being in a relationship. If you’re reading this blog it probably means that you ARE in a relationship with your 401k, which is great! But just because you’re in a relationship doesn’t mean everything is perfect.
Odds are you fall into one of these six kinds of relationships with your 401k. Let’s put them under the microscope and see what’s going well and what flaws might exist.
You are constantly contributing to your 401k. 10%, 15%, or 20%―it doesn’t matter. Anything to keep your 401k by your side all the way to retirement. You don’t care what funds you’re in or whether you get an employer match.
Pros: Contributing is numero uno when it comes to a happy relationship with your 401k, and giving all you’ve got to your 401k can cure a lot of ills.
Cons: The $$$ you put in your 401k should be working for you and not the other way around. Throwing your hard earned cash into a money market account or a high fee investment that doesn’t do anything for you can lead to heartbreak.
Things you might say to your 401k: Oh, you only had a 2% rate of return this year? It’s not your fault. Let me just up my contribution level to make you feel better.
You set up your 401k… isn’t that enough? Why do you need to check in on it? It should just be grateful that you contribute a few bucks every paycheck.
Pros: Not looking at your 401k and over thinking it can be a virtue.
Cons: If the foundation of the relationship isn’t there, or if you’re not properly invested, this relationship could be going nowhere.
Things you might say to your 401k: Stop complaining, I could be spending my money elsewhere.
One look at you and anyone can tell you care about your 401k. You are very attentive, but somewhere in all that effort you’re putting towards your 401k, you may start to suffocate it with your demands and restrictions.
Pros: You care, you really REALLY do. Attention is important – after all, it’s your retirement we’re talking about.
Cons: Too much attention can lead to irrational reactions.
Things you might say to your 401k: What do you mean, your balance is less this statement than last statement? This relationship is OVER!
The Enthusiast/Thrill Seeker
You are always looking for something new. Investing in the same funds just doesn’t do it for you. You’re willing to be a little reckless if it means your portfolio is different from others.
Pros: You live on the edge and are likely to take on more risk in your investments, which can net out.
Cons: 401ks are a long term deal, so changing it up constantly and seeking out the new can lead to betting it all on a potentially bad choice – see bitcoin.
Things you might say to your 401k: Bonds? What are those? Hey baby, let’s time the market.
You know your relationship with your 401k has problems. Maybe you’re under-diversified or have a high expense ratio, but it’s not “that bad”.
Pros: You’re aware. As they say: knowledge is half the battle.
Cons: Close only counts in hand grenades and horseshoes. This is your retirement and every dollar counts. Every opportunity you miss to fix what you know is wrong is money left on the table.
Things you might say to your 401k: I’ve been with my financial advisor for years. Who cares if he charges me too much to rebalance you?
The Jealous One
You are constantly looking at other people’s 401ks and seeing what they have that you don’t – better funds line ups, more money, rate of return, etc.
Pros: You want your 401k to be the best. That’s why you’re always looking around.
Cons: Not all 401ks are the same and neither are individual financial situations. Measuring your 401k against someone else’s is a fool’s errand and can get you off track or distracted.
Things you might say to your 401k: Bob’s 401k grew 15% this year. Why did you only grow 12%?
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