Tags: retirement | 401k

Should You Worry About Your 401(k)?

Should You Worry About Your 401(k)?

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Wednesday, 25 April 2018 04:22 PM Current | Bio | Archive

Over the past few decades, 401(k) investment accounts have become one of the most popular methods for workers to save for retirement. The ease of use and the steady performance of stock markets has combined to drive up the amount of money being stashed away in 401(k)s. Investors now have nearly $5.3 trillion tucked away in 401(k)s, making up 19 percent of the country’s overall retirement assets. That’s nearly triple the amount of money held by 401(k) plans in 2000. But with so much more money on the line, is a 401(k) really all that it’s cracked up to be?

Retirement Savings Continue to Grow

It isn’t just 401(k)s that are continuing to grow, it’s IRAs too. The amount of money in IRAs also more than tripled between 2000 and 2017. Breaking down those growth rates annually, that amounts to a 6.7% average annual increase in 401(k) investment, and a 7.5% average annual increase in IRA investment. That compares favorably to the average 5.0% annual increase in the Dow Jones Industrial Average. Of course, the increased gains for investors may not be solely due to returns beating the market.

Many employers offer matching 401(k) contributions, normally on the order of 4-6%. That means that an employee dedicating 5% of his salary to a 401(k) could receive a similar contribution from his employer. That’s essentially receiving free money, and should mean that most investors should see annual increases in their account balances that beat the market growth rates because of that free money.

401(k) Drawbacks

One of the drawbacks of most 401(k) plans, however, is that your investment options are often quite limited. Rather than being able to choose exactly what you want to invest your money in, you are often given a list of funds in which you can invest your money. If you’re lucky, you’ll work for a company that offers you a few dozen funds that run the gamut from general large-, mid-, and small-cap funds, to international funds, and even funds that target specific countries or industry sectors.

Investors have to do their homework when investing in these funds, because they may not be the best performers. In some cases they may just be easy for the employer’s 401(k) plan administrators to work with, while their performance may be subpar and their fees may eat into any returns.

Then there’s the question of what to do with 401(k) funds you’ve amassed if you switch jobs. Many employers don’t want the hassle of managing former employees’ funds, so they’ll move your money into a “safe” but low-performing fund that eases their administration time and expense. Failing to roll that money into a new 401(k) or a new IRA could mean that your investments will continue to underperform until you move them.

401(k) Accounts Often Lack Diversification

But perhaps the major drawback to 401(k) investments is that they lack diversification. The overwhelming majority of 401(k) funds invest primarily in stocks. Even those that diversify through bond investments or other financial assets are still primarily dependent on financial markets for their continued performance. Once financial markets start to slump, so do the investments in most 401(k) accounts.

For many investors looking for strong, steady, long-term growth, investing through 401(k) accounts can be like taking two steps forward and one step back. Yes, you’ll get ahead in the long run, but there can be better ways to invest than just taking the default option that you’re offered.

Diversification Is Important

The key to successful investing is to make sure that your investments are fully diversified. Just investing in stocks, bonds, and CDs isn’t diversification. Those investments all rise and fall with the business cycle. Now that we are facing both a potential stock market bubble bursting and the end of a decades-long bond bubble, we may be in for several years of subpar growth. For investors looking to retire anytime soon, that is cause for concern.

Thankfully there are numerous options available to investors who want to educate themselves and avail themselves of every opportunity to grow their nest egg and protect their wealth in retirement. And one of the best options to do that is by investing in gold.

Since 2000, gold’s value has risen an average of almost 10% per year, nearly double that of the Dow Jones. More importantly, gold tends to rise in value as stock markets decline. That’s good news for investors who are worried about the performance of their stock-heavy 401(k) accounts and who want to diversify their assets and protect them from a stock market decline.

Just like financial assets, gold can be held in an IRA account by investing in a gold IRA. A gold IRA benefits from the same tax-advantaged status as traditional IRA accounts, and you can even roll over existing 401(k) and IRA assets to fund a gold IRA. So if you’re worried about your 401(k) accounts losing value in a stock market crash and want to diversify your portfolio, you owe it to yourself to look into investing in gold.

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Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.

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Over the past few decades, 401(k) investment accounts have become one of the most popular methods for workers to save for retirement.
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2018-22-25
Wednesday, 25 April 2018 04:22 PM
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