First Person: Rolling Over My 401(k) Meant Missing a 25 Percent Return

Yahoo Contributor Network

When I rolled over an old 401(k) plan into a Rollover IRA about a year ago, I thought I was making a brilliant financial move. After all, having my hard-earned money in an IRA meant I could invest how I pleased instead of being held back by a restrictive 401(k) plan with a handful of mutual funds. I could have rolled the money from the old plan into a new 401(k) plan at my new company, but didn't do it. My mistake cost me a 25 percent return on my money this past year or about $25,000. I know what would have happened with my money because I saved a small amount into the new plan. I was reminded of my foolishness recently when reading an article by CNBC about damaging one's nest egg by trying too hard to invest. I can't get back this past year, but I can learn from my mistakes.

Timing the market

One mistake I made this year was trying to time the market. I kept my money in my Rollover IRA in a money market because I was sure the stock market was going to crash. Meanwhile, the small amount of money I invested in various mutual funds in my new 401(k) plan went up 25 percent. I need to learn to keep at least half of my money invested in stocks during bull and bear markets.

Forgetting to rebalance

According to a recent JPMorgan Retirement Plan Services analysis, the average target-date fund return was 12.6 percent in the past three years, compared to 11.4 return for do-it-yourself individuals. I have no problem managing my own account. According to experts, the mistake many investors make is taking a "do-nothing" approach to their 401(k) plans instead of rebalancing. I now go in once a month to make sure I have a percentage equal to my age in conservative bonds and fixed income and the rest in mutual funds made up of small, mid-size and large companies.

Being paralyzed by fear

Another mistake I made was treating my retirement nest egg like a game that I could win. I felt as though investing in mutual and exchange-traded funds within my Rollover IRA would be admitting defeat as an individual investor. I thought I was smart enough to pick the winning stocks. Instead, I was paralyzed with fear as I waited for the market to crash. Although it's completely boring, I've learned it's best to buy 20 to 100 shares every month in a diversified exchange-traded fund or mutual fund within my Rollover IRA than sit on the sidelines forever.

When it comes to investing for retirement, it's true that I can be my own worst enemy. At the same time, I'm not going to be lazy and throw all my money into target-date funds that often charge higher fees. I rather keep learning and growing as an investor. I might not always beat the 25 percent return that my 401(k) saw this past year, but I'm not expecting double-digit returns every year. I just think that no one has as much of a vested interest in my retirement account performance than me.

More from this contributor:

My 401(k) Balance Hit a Record High

I'm Happy in our Smaller Home

Investing after a 401(k) Wipeout


View Comments (1)