11-16-2015 09:30 AM
Content provided courtesy of USAA.
Headline-grabbing reports can make even the most financially secure nervous.
As markets rise and fall faster than a scream-inducing roller coaster, you may be tempted to make major changes to your 401(k), IRA or other retirement accounts.
But USAA professionals say you shouldn't let fear drive you to make these four common mistakes:
- Obsessing about your portfolio. "Sure, it's OK to stay informed about the market and your holdings, but remember, each new headline doesn't warrant a portfolio adjustment," says JJ Montanaro, a CERTIFIED FINANCIAL PLANNER™ professional with USAA. Once a year, maybe on your birthday, review your investment portfolio. Tune out the noise and focus on long-term results.
- Playing it too safe. Dumping stocks and placing all your retirement savings into more conservative investments is tempting, especially as retirement approaches. But over the long haul, stocks have been an effective hedge against inflation, says Robert Steen, director of retirement and complex financial planning advice for USAA. "To reap rewards, you have to take some risks. Right now, interest rates are so low, money isn't working for you if it's in a savings account or CD." If you find keeping track of your portfolio too stressful, look into target-date retirement funds. These spread your money across stocks, bonds and other investments based on how long you have until retirement. The mix becomes more conservative as that date approaches.
- Stopping 401(k) contributions. If your employer matches any part of your contribution, put in at least enough to get the maximum match. Otherwise, you're turning down free money. So, if you've been allocating 15% of your salary but your employer only matches 6%, perhaps downshift to the lower amount and put the extra funds into an emergency fund.
- Pulling money out of your retirement funds. Even if you find yourself in a financial crisis, this is not the time for a knee-jerk reaction. Tapping into your 401(k) or IRA should be your last resort. That kind of withdrawal could come with an immediate tax hit or a stiff financial penalty. "Don't use your retirement fund as a piggy bank," Steen says. "Look at other alternatives first. If your retirement account is your only alternative, consider taking a loan from it, but pay it back ASAP."