0:00:00 - Speaker 1

Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra, sipc Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor Cambridge and Greenway Wealth Advisory are not affiliated.

0:00:20 - Speaker 2

It's time to dive into some insider secrets of investing and retirement planning. To make your retirement as smart and as elegant as possible. This is Money Chic with Sherry Rash.

0:00:31 - Speaker 3

Welcome into another edition of Money Chic, Women and Retirement with Sherry Rash. We're going to be talking about the top five 401K mistakes you need to avoid, or they're about. So four, five, six somewhere in that neighborhood. But that's what we're going to go through this week on the podcast and, of course, if you've got questions around these topics or any other topic, make sure you're checking with a qualified professional like Sherry, who is a financial advisor and money coach at Greenway Wealth Advisory. You can find her online at GreenwayWealthAdvisorycom. Sherry, what's going on? How are you?

0:01:02 - Speaker 4

Doing alright. I can't believe we're smack dab in the middle of the holiday season. I am so behind schedule.

0:01:08 - Speaker 3

I know we were just talking about that. As we were getting started, we were like man, when did December show up?

0:01:13 - Speaker 4

But and Thanksgiving, I think, was the earliest it could possibly be, so we have an extra long preparation time for Christmas.

0:01:22 - Speaker 3

Right.

0:01:23 - Speaker 4

I haven't done a single thing, shopping-wise, I'm so behind. I just got my lights up, so now I feel in the spirit.

0:01:30 - Speaker 1

Okay.

0:01:31 - Speaker 4

I wasn't feeling in the spirit, not in a bad way, it was just. I just wasn't ready for it. It came way too quick, and now my lights are up, but I haven't bought a single thing yet, so I am so behind you better hurry up.

0:01:43 - Speaker 3

Yeah, exactly, because it's going to be a weird one, I think. Yeah, I actually decided to go a little smarter this year, so I've got everything done but one. I just have to get one thing, oh good for you.

So, yeah, so that'll be good. But yeah, it happens, right, thanks, creepup on us. We make those mistakes when we get behind. So let's talk about some of these 401k mistakes.

The year's winding down, but it doesn't mean we can't start prepping or thinking about things for the next year, and I know it's easy to kind of get lost in the shuffle and say, well, I got too much going on. But if you're I don't know you listen to this podcast while you're maybe doing, maybe while you're shopping, maybe while you're online doing something or whatever. So always a good time to pick up a few nuggets of useful information. So let's talk about these.

The 401k it's a great tool, right, I mean, it's easy, it's painless, it's a great way to build savings and I think that's probably the key word in there is build, if nothing else, at least just for the match. But because it's so easy and painless, sherry, it's also easy to kind of forget about it and just ignore it for long periods of time, which can lead to some of these mistakes. So let's start with the first one. Might even be just as simple as leaving one behind. Many people have heard the term stray 401k, right, so you've moved on, left the job in someplace else. Hopefully you remember to take it with you, but it's surprising the number of people that leave them behind.

0:03:06 - Speaker 4

I would say most people don't even realize that this is actually a mistake to leave your 401k behind. Most people just say, well, I'm leaving my employer, it's invested and really don't give it a second thought. Also, you're busy, you're preoccupied, you're distracted with starting a new job. Most people don't think, oh, let me bring my, let me work on my finances as well, as I'm having a major life change. But the average person changes jobs 12 times in their career. So there's potentially 12 mistakes the average person is making by leaving their 401ks where they were with their former employer.

0:03:48 - Speaker 3

That's pretty wild. And what are some of the key things by leaving it behind? I mean, the biggest thing is just a lack of control, right, if you leave it behind, you really have no control.

0:03:57 - Speaker 4

You have no control over it and you're likely forgetting about it. Right, you left it behind because, like you said before, 401ks are easy and relatively painless, so you're not giving it any thought. Is it even invested? I come across, more often than I'd like to admit, 401ks that were never even invested. The person just did not pick an investment option, so it's been sitting in cash. So that's a biggie, that's a big mistake, but it's not being watched, it's not being managed and it's just not given the attention that it needs.

0:04:34 - Speaker 3

And fees start to. They can be very fee-driven and we're going to talk about another piece of that here in just a second on this list, so we'll get to that in a minute. So that's the first one. Just don't leave it behind. Just go ahead and roll it over into an IRA, or talk with your advisor. Does it make sense to roll it over into the new 401K, the new company? Probably not. Most time, I think, people advise you to put it into an IRA, but because it gives you more options right.

0:04:59 - Speaker 4

The logic behind of rolling it into an IRA is to make sure one you have control over it. It's top of mind for someone, whether it's you or your advisor it's top of mind. It's not getting forgotten about. It's one less extra statement you're receiving in the mail if you consolidate your 401Ks, and it also makes sure that all of your money is working together versus working in silos and I talk about that a lot with my clients is that you need to make sure your money works together, and we often think about all of our accounts in silos and treat them independently of each other.

But, you really need to make sure everything's working together to ensure you're taking an appropriate amount of risk, you're not over concentrated in a certain area and that you are diversified appropriately.

0:05:47 - Speaker 3

Yeah, that's a great point. Yeah, so making sure all the different silos do actually work together, all right. So that's the first one. Second one, and this one is probably people fell victim to that this year in 22, which is failing to rebalance often enough. 21 was a pretty darn good market overall, and so if you didn't rebalance, yes, 10 years, right so if you didn't rebalance going into 22,. Okay, so, and it's important, right? I mean, that's part of the review process and all that kind of stuff. You need to rebalance these things.

0:06:14 - Speaker 4

And often enough it's subjective really.

I mean, some advisors may suggest rebalancing quarterly, some annually. But the logic with rebalancing is it helps you follow the cardinal rule of investing, which is sell high and buy low. So when you rebalance, if you think about making it very simple, you have two stocks and one stock is going to do better than the other. So if you have $100 and you have it split $50 each between two stocks, one stock is going to do better than the other. So you may then have, instead of 50-50 percentage by the end of the year, it looks more like 75-25 if one did significantly better than the other. So by rebalancing and bringing it back to 50-50, 50% and 50%, you're selling off a portion of the stock that is high Right and then you're taking those dollars and moving it into the stock that is priced lower. So rebalancing forces you to sell high and buy low. So that's why rebalancing is important. At least do it once a year. Some advisors may say quarterly, but at least once a year to make sure you're taking advantage of that buying and selling.

0:07:31 - Speaker 3

Okay, All right, Great points there, Thank you so much. Now this one the number three here on the list, Sharon, I think is one that it can be very polarizing amongst advisors because it's around target day funds People sticking their money in a target day fund and just kind of feeling like, yay, I'm customized or whatever right, Because I picked the 2040 and that's when I'm going to be old enough to retire or whatever the fund happens to be. And I find, talking with different advisors all over the country, that many of them are not fans at all of target day funds. But it's so easy for us to do because most of us don't understand this stuff. So we get a job and it's like what do I put it in? You just talked a minute ago about those. You know some accounts that are not invested. This is an easy little hanging fruit for folks, so it makes a lot of sense that we do it and there's a lot of them out there.

0:08:15 - Speaker 4

It's easy. It doesn't require much thought. You don't have to worry about managing it, rebalancing it. That is the pro of a target date fund. So for a novice investor investing in their 401k, you pick the target date fund. It makes sense. It's allocated based on your retirement. But the cons of a target date fund is that it's not customized to you. It treats everyone that is retiring in 2040 the same exact way. It assumes every person in the 2040 fund has the same risk tolerance, has the same dollar amount and is exactly the same as far as the investor goes is the same age. Even you could be retiring in 2040, but be very different ages, right? Because everyone plans on retiring at different times. So those are the cons of the target date fund. It's better than nothing, but if you are working with an advisor, it probably would be best to get a second opinion on. Can I do something? Step up my investment above the target date fund?

0:09:21 - Speaker 3

Yeah, and they tend to. There's some misnomers out there. A lot of people think that, well, as they get closer to that number, let's just stick with the 2040 for easiness, that they do scale down the risk. And that is true, but only so far. I think there's a lot of misnomers out there that people think, oh, by the time it gets to the 2040, it's like basically zero risk. And that's not the case, right? So most of the.

0:09:42 - Speaker 4

that's not the case. Yeah, but you also don't want that right, you don't want that either, right. Because you still have 20 plus years that you're going to need this money for to be.

0:09:50 - Speaker 3

Oh no, exactly, but I think it's just a lot of miseducation, education, lack of education, I suppose, right Around the different product that can. That can certainly cause some of those issues and fees as well, and we'll talk about that and more in just a second Number four on the list, kind of back to the whole, leaving one behind, or just in general. Most people don't realize you know, we are not as the I guess the participant right, as the right word in the 401k. We are not the client, are our employer is right, they're the ones that's actually the client of the 401k. So that's another reason to consider doing an IRA and many advisors talk about, hey, definitely take care of the match, you know, get that free money, but then let's, let's maybe look at other options for, you know, other investing, just because you have more control.

0:10:37 - Speaker 4

Yeah, I mean it's interesting when setting up a 401k for the employer. You're absolutely right. The employer is who is choosing the plan administrator, which the fidelity, the Vanguard, or you know the smaller, more boutique plan administrators that send out the statements. Right, the 401k provider provides the plan investment options, but your employer is who is working directly with the 401k company to decide what investment options are available, what cost and we're going to talk about this in a minute but what costs are being passed on to the employee, the participant?

0:11:16 - Speaker 3

right, and they're making those choices based on their business too, right. So, hey, you know they may not pick, you know a manager is that's going to, you know, maybe be a little bit better for the employee because it's actually going to cost them more. So they may pick one, that's, you know, maybe the options are less because that's saving them money as a company. You know it. Just it kind of depends on the company, right?

0:11:36 - Speaker 4

Right, because the employer and the plan provider are fiduciaries, so they're responsible for providing you investment options. So that's another reason why the target dates are available, because that's very easy for the employer and to check the box and say I provided, you know, good investment options for my employees and take some of that fiduciary responsibility off of them. So yeah, the employer is absolutely the client of the plan provider and the employee. You're not receiving that, that service. You're calling a 1-800 number, you're letting them know the plan that you're invested in and you're getting routed to a customer service center. So you're really not the client the employer is who's dealing with the plan provider one-on-one.

0:12:25 - Speaker 3

Yeah, and we're going to finish up with number five, which is the fees and costs. And again I want to make sure that we're stating that they're not bad, sherry, and I mean. The 401 Ks are there again. They are a great tool, but they are typically they're better on the building side, I think, than it is on the distribution, and for the retirement side there's a lot more things, that there's better options, I suppose right, and once you've built the money, there's different things to do. So I want to make it sound like we're completely bashing 401 Ks. We're just simply highlighting some areas where people tend to not realize that the mistakes could be made. So, with that said, let's finish off with the fees and costs. A lot of times you just don't see them, you know, and who really reads the prospectus to realize you know what you're paying?

0:13:06 - Speaker 4

Right it. Just because you don't see the fees doesn't mean they're not there. 401 Ks on average range between a half a percent to 2% when it comes to the cost of the plan and the investments.

0:13:19 - Speaker 3

And like I mentioned swing. I mean it is a big swing yeah.

0:13:23 - Speaker 4

And a lot of it is determined by the size of your company. So if you work for a larger company, odds are your costs are a little bit less If you work for a smaller company. That's one of the decisions the plan can make. The company can make is to pass on some of the costs of the employee to help their bottom line. So just because you don't see, see the fees doesn't mean they're not there. They certainly are. But, like you said, the 401 K is a great way to build. It forces you to save and it comes right out of your paycheck. You don't feel it. So it's a great accumulation vehicle. But as you switch jobs you treat it as the accumulation vehicle for that job, not the growth vehicle after you leave that position. It's definitely a better way there's better options out there to get more personalized investment options and get your money working for you the best way possible.

0:14:21 - Speaker 3

Yeah, and really I mean that's kind of the big point of moving and moving over to an IRA, you know, once you've kind of accomplished what you're going to accomplish there, because you just have the smorgasbord, if you will, of, you know, the Christmas dinner buffet, if you will, of options, versus the 401 K plans, which are typically limited right, so based on whatever the employer set up. So those are some top mistakes. Anything I missed that you'd like to throw in, or do we feel like we covered it pretty good?

0:14:45 - Speaker 4

I think a big thing is understand the different types of dollars you can contribute to your 401 K, meaning, does your employer offer a Roth option as well?

Oftentimes we may just assume you can only do the pre tax contribution to your 401 K to reduce your income and then the money goes in pre tax gross tax deferred and then when you make the withdrawals in retirement, you're then paying taxes on that full amount. But if your employer offers a Roth version, that's really awesome. It's awesome for a couple of reasons. One you are not limited by the income that you make to contribute to a Roth 401 K. But that's a great way to get tax free retirement savings. You contribute to the Roth 401 K after tax, so it comes out of the bottom line of your paycheck, but then you then have that ability to have the tax defer growth and then the potential for tax free withdrawals in retirement. So definitely check that out if you have a Roth option.

0:15:51 - Speaker 3

Yeah, and more companies are starting to do that now. So it's been a slow rollout for many, but more and more are starting to make that Roth 401 K option a possibility. My wife's company just did the same thing as well, so that's great advice as well. Another extra tip. So thanks for hanging out with us folks. Thanks for listening to the podcast. As always, if you need some help, reach out to Sherri and have a chat with her at GreenwayWealthAdvisorycom. That's GreenwayWealthAdvisorycom. And don't forget to subscribe to the podcast Money Chic, women and Retirement. And you can find us on Apple, google, spotify. You can simply type that into the search box and find it that way by typing the name of the podcast into the search box of, let's say, apple Podcast, or you can just stop by her website, greenwaywealthadvisorycom Again, greenwaywealthadvisorycom. Sherri, thanks for hanging out. Have a great week and I will see you, I think, sometime right around Christmas.

0:16:41 - Speaker 4

Sounds good. My shopping better be done by that.

0:16:43 - Speaker 3

There you go, We'll find out. We'll catch you next time here on Money Chic Women in Retirement with Sherri Rash.

0:16:54 - Speaker 1

Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra SIPC advisory services through Cambridge Investment Research Advisors Inc. A registered investment advisor Cambridge and Greenway Wealth Advisory are not affiliated.