401ks: The Biggest Mistake People Make
About 8 years ago, I logged into my Fidelity investment accounts for the first time in years to look at how they were doing. What I found was very upsetting.
Three years prior, I’d rolled my 401k over from a former employer. Basically I took my retirement account from my old job with me when I left. I’d heard that was what I was supposed to do, so like the rule-follower that I am, I called and got it done. Problem was I didn’t know I was supposed to do anything else with that money. I assumed it would remain invested and keep growing, but it had not.
For 3 years, tens of thousands of dollars sat in a cash account earning nothing. Not a dime.
After a mild panic, I took care of the situation and invested that nest egg, but I learned two important lessons: 1) Check your money regularly, Jenny, for crying out loud. And 2) Investing is a two-step process.
The number one mistake I hear from people — and one that I’ve also made — is setting aside savings in an investment account and not actually investing it.
There are two steps to investing, and they’re both equally important.
Create & fund an account
Buy your investment
An account is held by a company, like Fidelity, Vanguard, Schwab, or the like. Opening one is quick and easy. And transferring in funds is simple with a bank draft.
The investment choice is up to you - could be stocks, bonds, index funds, mutual funds, or ideally a mixture. So the second step is to buy that investment with the money in your account.
The best analogy I’ve heard for the investing process was from Tori Dunlap, author of Financial Feminist. She compares investing to a gift card. You’ve got to load money onto the card (open an account and deposit money) and then you have to buy something with it (choose your investments).
Often we complete step one and think we’re done. But if that money isn’t invested it’s earning zero-point-zero-zero money. It’s just a gift card floating around in your wallet.
Step one is great. But I’m guessing you don’t have an investment account just to stockpile cash. Make that money work for you and earn you more money.
The mistake I made a was memorable. I remember exactly how much un-invested money was in that account when I first invested it. And since then, I haven’t added a single penny to it and I haven’t sold a single share. And the money has doubled.
If you’re in that same situation, with a nest egg you thought was invested and it’s not, don’t fret! But do take action. Time is money.
I can help empower you with the information to get invested, so schedule a free consultation and make your money work for you right now.