A lot of 401(k) investors end up making the same mistakes when choosing their investments. The results are low returns and unbalanced portfolios. Avoiding these four mistakes is a good start for getting more out of your 401(k). There is no easy answer to how you should allocate your 401(k). You have to make these decisions on your own based on your personal risk tolerance, investment choices and the allocation of your other investments. Mistake #1: Going Overboard on Risk Avoidance Many 401(k) plan participants are either overwhelmed by the list of investment choices or are simply afraid to take any risk in their investments, and so put all of their savings into a money market or stable value fund. Sometimes the money market fund is the default option for their employer’s plan — meaning their money ends up there, earning very low interest. Nobody bothers to change it. Money market and stable value funds are basically fancy words for cash, a low risk, low return investment, and the return from cash usually lags behind inflation. This means that a 401(k) in these safe investments will probably decline in value over time. For many folks, the investment horizon is long, so you can tolerate some volatility to get the higher returns later. Mistake #2: The Equal Allocation Trap Another common mistake made by investors in their 401(k)s is to invest an equal portion into each available investment option. This is called the 1/N Rule. There are many problems with taking this approach. First, you do not need to invest in every option available in your plan. Especially now that target date retirement funds (mutual funds that change allocation based on
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