The Biggest Mistake You Could Make With Your 401K

You're probably thinking that the biggest mistake you could make with your 401k is not contributing any money to it or starting too late with contributions. That's certainly a mistake and a big one but not the biggest.

The absolute worst thing you could do would be to put all or most of your 401k money in your company stock. Although you may be working for a great company that's been around for a long time with a great track record of stock appreciation, the fact remains that leaving the majority of your retirement funds in company stock is extremely risky. This is a high-risk gamble that could virtually wipe out your retirement account if the company has financial difficulties.

I personally know of three individuals who did just that and lost a tremendous amount of money in their 401K's because of committing this error. In all three cases, their accounts were virtually destroyed due to the recent stock market crash of October 2008. Years and years of savings were lost in a virtual instant as the market crashed.

So, what should you do? One of the best things you can do would be to use the "Rule of 100" when investing in general. This is a guideline used by many financial planners and basically says that the percentage of your assets invested in safe investments should be roughly equal to your age. For example, if you're 57 years old, approximately 57% of your money should be totally safe and protected from loss. You would do this in a 401K by placing the money in a money market fund or something similar. This is, of course, a general guideline but I'm sure you get the idea. Placing a majority of your financial assets into the stock market when you're in your pre-retirement years is definitely too risky.

Now, you may think that the return in the money market is too low but you have to consider the fact that the company match on your deposits makes the overall return much higher. Many companies offer a 100% match on your contribution and even if the match is only 50 cents on your dollar, your return will far exceed the 3 or 4% in the money market. Consider the company match as free interest and your return will be at least 6 or 7 % and possibly much higher depending on the percentage of your 401k deposits that your company matches.

It's also extremely important that you make the right decision on how to withdraw your 401K money when it's time to retire. This is a critical decision and is fully discussed in my free e-book called "The Retirement Survival Guide" which you can download at my website www.FreeRetirementSurvivalGuide.com.

If you would like to know precisely what your next 20 years of cash flow will be, my Retirement Snapshot cash flow calculator will do just that. Now being used by hundreds of financial planners around the country, the consumer version is now available to you at http://www.MyRetirementSnapshot.com

A FREE Trial is available at the website.