21 years later…it seems as if the years are getting faster doesn’t it? If you aren’t familiar with the famous picture of Ladder 118 crossing the Brooklyn Bridge headed towards Manhattan on the morning of 9/11/2001, I encourage you to google it. What a reminder it provides of those that rush into danger to try to save or protect the rest of us from it. Last week the market really rallied in a big way with the S&P 500 posting a 3.68% positive return. That reduced the year to date deficit for the domestic index down to -13.72%. Bonds again struggled last week with the U.S. Aggregate posting -.70% for the week bringing the year to date loss to -11.56%. As most know by now, President Biden announced student loan forgiveness. There are still quite a few questions to be answered regarding the details. Here is a LINK that takes you to additional information. Did you know that last Friday was National 401(k) day? I’m not making that up, it really was! Seven common mistakes I see with 401(k) are: - Not participating – start small if you have too, but start!
- Not getting all the employer match – many retirement plans have a match. Make sure you are putting enough of your own money in to receive all the match…don’t pass on free money!
- Being too conservative when you are young – I understand not everyone is a risk taker, but when you are young and you have decades before you can use the money give it a chance to grow. The market works, especially over long periods of time. Example for someone making $75,000 a year who defers 7% for 35 years. With 3% returns the balance is $317,425. With 7% returns the balance is $725,743!
- The pre-tax deferral default – if you haven’t elected a Roth deferral you aren’t putting Roth dollars into the plan. 401(k) plans use the pre-tax deferral as the default. You must pro-actively elect the Roth deferral. For most participants the tax free growth the Roth could be more valuable than the tax deduction you get with the pre-tax deferral. The younger you are and the lower your income the more beneficial the Roth becomes.
- No beneficiary listed. Don’t leave this up to chance or up for dispute for those that survive you. Get that beneficiary listed.
- Borrowing from your 401(k). Some plans allow for loans that you pay back through payroll. Just because you can borrow it doesn’t mean you should. Many times borrowing the money from a conventional lender would be better.
- Taking too much risk late in your career. If you can see the light at the end of your working career tunnel you don’t have time to lose a lot of money in your 401(k). Take pro-active steps to have a retirement readiness plan and reduce the risk that your retirement date is subject to the stock market performance.
As always, we hope you find the Weekly Market Review both informative and interesting. Have a great week! Trevor N. Coe, CFP® |
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September 14, 2022