Hi, my name is Bob Brooks and welcome to the prudent money channel. You know, the majority of retirement assets are going to be found in a 401k plan, I mean, the individual, that's the way they say if that's the way they say for retirement. So if you look at most financial situations, you're gonna see all their money or the, like I said, the majority of their money sitting in a 401k plan. So it's so very important if that's where the money is going to be that you know how to effectively invest in your 401k plan. In fact, I did a teaching video on that. But today, I want to talk about what not to do, what mistakes not to make me there's for over $4.6 trillion sitting in 401k plans.

So it's important to know exactly what you're doing when it comes to 401k investing. Let's start with the very first one don't contribute without a reason. And you might be thinking that's kind of crazy. You know, ask people so why are you contributing into your 401k plan? They'll say, well, it's for retirement, of course. And I'll say what else specifically, why are you contributing into a 401k plan?

And what the answer that I'm looking for is simply this so that it's a certain age, I can take out a certain amount of money, and I can live off of that money for 2530 years. And I know that I have to make a certain percent return on that money through the years to accumulate enough money to satisfy that goal. That is a reason why too many too often times, people just say for their investing for retirement, but you got to have a game plan put in place so that you know exactly what you're doing and why you're doing it because you're putting most people that put money into 401k plan are putting a significant percentage into that plan. So you want to make sure that you know why you're doing it and make it count. The second Don't, don't sacrifice the short term for the benefit of the long term.

You know, this never really made sense to me, is that someone starting out and conventional wisdom is Oh, you need to start saving into a 401k plan, immediately put 10 15% into a 401 K plan. So they they Please start investing into a 401k plan, they manage they track it, they say, and an emergency happens, and they have no money to pay for the emergency. Well guess where that goes, start building on the credit card is so very important. I know this flies in the face of conventional wisdom. But it's so extremely important to make sure that you put an emphasis on the short term that you get that covered before you start investing for the long term. Because the reality is, is that you could have hundreds of thousand dollars, hundreds of thousands of dollars, excuse me, in a 401k plan set to the long term, but makes no different difference if you have a short term emergency, so focused on that emergency fund first before you jump into the world of 401k.

Investing. Number three, don't throw away free money. Now I know this is going to be kind of in conflict what I just said and maybe it's a balance. But if if your employer is giving you a match giving you free money, so let's say they're, you know, they're contributing up to $1 for dollar up to 3%. I would at least go to 3% And take advantage of the free money. And maybe if you're gonna put 10% back total, you go up to the match at 3% and put 7% back to build the emergency fund and you kind of balance it.

But I see more and more people that have the ability to get free money. I mean, that's guaranteed return on your on your contribution, and they don't take advantage of it. So you don't want to throw away free money. Think of it from that standpoint, you'll be a lot more motivated to take advantage of it. Number four, don't assume it is worthy. In my teaching video on effectively using a 401k plan.

I talked about that not all 401k plans are good plans. There are some really pretty bad ones. And if you are with if you have a bad 401k plan, you don't want to sock away all your money into that you want the most effective type of plan possible so that you can be the most successful, so don't just assume it is worthy. And I see this with a lot of people is that Oh, there's a 401k plan. I'll start saving into it. Now tell me what to put I should I should invest in on that teaching video.

I talked about everything. You should look for in an effective 401k plan and other options as well. If you don't have access to a good 401k plan, remember, you want to do this effectively when it comes to saving, investing, tracking for retirement and managing as well. Number five, don't leave your 401k plan in your old office, too. Oftentimes, people will, you know, they'll either get laid off, or they'll change jobs, they'll go to a different company, and they'll take everything with them, except the leave their 401k plan and just kind of leave it what ends up happening is it becomes out of sight, out of mind, and so not a good thing to do. If you're packing up your office, you're not going to leave personal belongings, you're not going to leave things that are there that are yours in that office, you're gonna box it up and take it with you.

Think of it as your 401k plan, take it with you as well. You can roll that 401k plan into a new 401k plan. You can roll it into an IRA that you manage and you can control the cost or you can put it with an advisor Have an advisor manage it for you. And whatever you do, make sure you take it with you. Number six, don't sacrifice high interest debt for 401k plan investing. I was talking to somebody not too long ago, and she had an IRS issue.

She had a student loan issue. And she'd fallen behind in paying the debts that she owed to the IRS into student loans. I gotta tell you the two number the two worst places you don't that you want to fall behind on are the IRS student loans because there's real big consequences with that. And then I asked her, What are you putting back in your 401k plan on putting 15% back I mean, she was putting five or $600 back a month into a 401k plan. I said, you know, if it were me, I think I would get current and stop putting money back in that 401k plan. And once again, this is going to fly in the face of conventional wisdom.

But it makes sense to use your resources wisely. And always you 401k plans not always the wisest use of your of your resources. Number seven, don't pay a fee for asset allocating, here's one of the things that I'm seeing with 401k plans is that the company will provide advisors or or an outside company that you can pay them to manage money. Anytime you're paying somebody and a fee for investment advice or managing, you want to make sure that you're getting something for it. And what I mean by that if they're just moving money around every once in a while, I would suggest you're probably wasting that fee. So because as I talked in other teaching videos, you can asset allocate yourself, you don't need somebody to do that for you, unless you just really don't want to do it.

You want to pay somebody. To me it's somewhat of a waste of money. Anytime that you're in a situation where you can hire somebody on your 401k plan. Make sure it's worthwhile, make sure that you're getting your money. money's worth a number eight Don't Don't be lazy with target date funds. If you've watched any of my teaching videos, You know, I'm not a big fan of these target date funds.

It's pop culture finance. And it's the mutual fund industry's latest gadget, if you will, for investing, basically a target date fund is, is based on your retirement target date. So if I'm, if I'm going to be in, let's say retiring in 2030, then I'm going to invest into a 2030 target date fund. And so what theoretically was supposed to happen as I age that fund is supposed to get more conservative as I get closer to retirement age, and the way that they market this they, they market it almost as if, hey, just put your money back and forget about it, which is pop culture finance, which doesn't always work. You don't you always want to pay attention to your to your investments, in fact, fidelity and a commercial not. This is years ago, advertising target date funds, and the couple that were being interviewed.

They were asking the the interviewer was saying, Well tell me about your 401k plan. You know, I don't know I've got it in some hard date fund. And I don't have to really worry about it, I just kind of leave it alone. Not a good way to approach your investments. As you know, from some of my other teaching videos, you got to be actively involved in what's happening with your investments. Basing risk just on age to me is not the best strategy because there's so much more that influences the risk that you're taking.

For instance, if you go if you're in your 20s, you go to work for a company, they're going to stick you into a target date fund by default, and it's going to be the riskiest because you've got all this time ahead of you. What they don't realize is that if you look at most surveys on Millennial, the millennial generation, it says they're risk averse. They don't want to be taking that kind of risk. They're probably the smart, smart generation. So by being in an age based strategy, they're probably 100% or close to it invested in stock market, which is in contrast to their risk level. So don't get lazy with the target date funds don't buy off into into what the mutual fund industry is trying to sell you Because there's way more to it than that.

Number nine, don't buy into the 401k loan myth. You know, there's the the notion that you can borrow money from your 401k plan, and you pay yourself back and you pay yourself back due to interest to yourself. You're not paying it to a loan company, you're putting interest back into the 401k. Well, most people don't know is that the money that you pay back into the 401k plan is paid with after tax money you've already paid taxes on. So you're taking after tax money, and you're putting it into a 401k plan, which is pre tax. So guess what, over time, that money that you pay back, that loan is going to grow and grow.

And then you're going to take it out of your 401k plan, guess what you're going to do? You're going to pay taxes on it a second time. So you got to know that going in, if you're going to borrow from a 401k plan, then there's setup fees in some cases, and you're taking that money away from investments to work for your long term. So don't buy into the myth. It's okay to borrow From the 401k plan, because you're paying yourself back in interest, number 10, don't use your 401k money like an ATM. You know, this was, I think probably about 10 years ago, there was a company that was trying to develop a an ATM program for your 401k not making this up.

The exit is really ridiculous. Basically, you'd have an ATM card, you could go to an ATM and you put the card in and you could just take money out your 401k plan. I mean, it's a horrible idea. money that you put into be intentional about it money that you put into a 401k plan is there for the long term. That's what it's that it's off limits. Think of it as off limits.

Now there are situations where it could make sense now if it if you're if you've seen this a lot, if you're out of a job, and you've got to have you got to have money, you've run out of your savings, whatever it might be. And then it's the difference between taking money out of a 401k an old 401k plan versus paying your mortgage then absolutely. literally take the money out of a 401k plan. But for everyday purchases or anything like that, stay away from taking money out of your 401k plan because that's not what its original purpose. You know, the 401k plan is a very, very important part of our overall retirement strategy in this country. And it's very important that you understand how to effectively use it, so that you can create the type of retirement that you want in your future.