If you’ve started saving for retirement, you’re ahead of the game. According to GOBankingRate’s 2017 Retirement Savings survey, about one in three Americans have no retirement savings, and 55 percent have less than $10,000 in retirement savings.
Among those who have started saving for their golden years, many take a “set it and forget it” approach to retirement planning. That means they automatically have specific percentages of their new contributions allocated among different investments.
Such an approach is simple and doesn’t require you to continually revisit your investments. However, these plans carry a number of risk factors. Understand these dangers so you’ll know how to invest well.
You Make Incorrect Initial Designations
If you’re not reviewing your asset allocations periodically, it could be years or even decades before you realize money isn’t being invested the way you intended.
Nicholas Fuller, a principal at Scottsdale, Ariz.-based Fuller Wealth Management, said he has seen many clients using the default plan of a money market account, which isn’t the right option for them. Because they had set it and forgotten about it, the clients were missing the opportunity to earn higher rates of return by investing in a wider range of assets.
Don’t fall into the same trap. Review your investment portfolio at least annually, so you can catch these errors and keep your investments on track, especially as you add more money to your 401k plan.
If you’re still using the same assumptions about investing that you did a decade ago, your investments might not be doing as well as they once did. The reasons you initially picked a fund might no longer be applicable, said Bill Van Sant, a certified financial planner, and senior vice president and managing director at Souderton, Pa.-based Univest Wealth Management.
For example, some people pick funds based on a fund’s expected return. Others choose a fund because they like the manager. However, expected returns can vary, and a manager can retire or be replaced, said Van Sant.
Also, the economy can change. Although an industry might be great today, keeping 10 percent of your investment portfolio in that industry for the next 20 years means you might miss out on other industries with better growth potential.