I take responsibility for my financial decisions, at least most of the time. When it comes to saving for retirement in recent years, it seems as though the economy and stock markets are conspiring against me. According to experts interviewed in a recent article by Market Watch, average investors just don’t have the financial know-how and sophistication to know how to manage their retirement savings. I beg to differ. I have had good success managing my 401(k) and Roth IRA accounts, but I don’t have enough money to invest due to rising costs of everything from food to health care and college. The Market Watch article quoted Jacob Hale Russell with Stanford Law School’s Rock Center for Corporate Governance. Russell wrote about the retirement savings crisis. He seems skeptical of the move from Social Security and pensions to individually-managed retirement accounts. That’s ironic since the Social Security system has been a big fat failure.
Keeping money in cash
Experts such as Russell point out that some workers leave their retirement portfolio money in cash or money-market funds, which can’t keep up with inflation. I think people who build up a large cash position will seem absolutely genius when the stock market crashes. I don’t think a person has to be a rocket scientist to buy a certain number of shares in a mutual fund over time to “dollar-cost average” into a position. At the same time, there is nothing wrong with waiting to purchase stocks until it’s another bear market. It’s true many investors were burned by the last stock market crash.
Cashing out retirement plans
The Market Watch article also chastises workers who cash out their retirement plans when they leave a job. When I switched companies, I rolled over my 401(k) money into a Rollover IRA. The move opened a door to many more investment options as opposed to a handful of mutual funds. The reason workers often cash out their retirement plans is because they need the money. Obviously wealthier people can afford to rollover their retirement accounts.
Rebalancing a portfolio
Other mistakes individual investors make include overinvesting in employer stock. I made the mistake of not investing enough in my company’s stock, which went up from just a dollar a share to more than $20 a share in just two years. Experts say some investors don’t re-balance their potfolios. Of course, the same people criticize people for re-balancing too often or buying and selling instead of holding for the long-term.
Some employees don’t take advantage of employer matching programs. I think it’s fairly obvious that anyone who doesn’t take the employer match has a ton of debt or other financial obligations. It’s not that the average individual investor doesn’t have a brain as much as they don’t have the money. Instead of shaming people for not saving enough for retirement, lawmakers need to stop taking so much money out for health care, taxes and Social Security so people can afford to save.
More from this contributor:
I Refuse to Fund my Husband’s Retirement
I’m Done Investing in Stocks
Retiring on a Different Timeline Compared to my Husband