There is a lot of misinformation out there about financial planning and investments. Below are four common money mistakes. If you identify with any, make the necessary changes and you will be that much closer to financial security.
Not Contributing to a 401(k) Since Your Employer Does Not Provide a Match
The number one reason I hear as to why people don’t contribute to their 401(k) is because their employer doesn’t match. I don’t know who started this idea that 401(k)s are bad unless you are getting a match, but it is dead wrong. The 401(k) allows you to save more than an IRA and these days most plans have modestly priced options for different objectives. Another mistake is only contributing up to the match. Aim for at least 10%. Your grey-self will thank you.
Paying Down Principal before Maxing Out Your 401(k)
Many people are uneasy with debt. However, if your mortgage is low (less than 5%) then you should not be concerned with paying down principal until you are saving what you need to for your other financial goals. Everyone’s situation is different but make sure you are at least maxing out your 401(k) contributions before even considering this. Retirement won’t be any fun if you don’t have any money to spend.
Not Thinking About the Stock Market Long-Term
One of the lingering effects of the Great Recession is that many investors still suffer from recency bias. Many experienced significant declines in their portfolios. Those that sold in the panic made those losses permanent. However, since the bottom in March of 2009, the S&P 500 tripled in value including dividends.* The lesson here is that unless you are needing the money for a specific purpose, the stock market is a means to accumulate wealth over long periods of time. The market goes up more than it goes down. In fact, in the past 90 years, the S&P 500 has posted positive annual returns over 70% of the time.** Don’t panic when things are red. In fact, that is when you most likely want to be a buyer.
Setting Your Investments and Forgetting Them
While I don’t condone actively trading in your portfolio, each year presents events that have significant impacts on your portfolio. A perfect example of this is the election we had last November. After the election it was clear that one political party would be in control of all three branches of government. With this comes a change in policies and that impacts the markets. What tactical changes did you make? If the answer is none you need to call Gerber Kawasaki immediately.
*LPL Weekly Commentary 3/13/2017
By Zachary Bainter
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.
Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.