blooom seven deadly sins
“IF YOU WANT SIMPLE AND EASY 401K HELP, YOU JUST STRUCK GOLD.” KEVIN CONARD, COO CO-FOUNDER OF BLOOOM Over 20 years we’ve compiled what we’ve seen as the most common mistakes everyday Americans make with their 401ks - The Seven Deadly Sins of a 401k . They aren’t pretty and they can destroy your retirement. Here they are - read them now, so you aren’t weeping later. Oh, and if you are looking for a bunch of technical jargon - digitally burn this, you came to the wrong place.
SIN #1
FUND SELECTION BY RATE OR RETURN
Cruising down the far right-hand column of your list of 401k options for the fund that has the highest 5 year return isn’t how you should go about picking which fund to invest in. That’s like going to the dog track and betting on the dog that’s won the last five races in a row. It’s meaningless and zero indication of the best fund to invest in. The truth is that many of the funds that have negative returns will more than likely be the best formers in the years to come.
WHAT SHOULD YOU DO? 1. Research the cost of the fund 2. Seek funds that have an indexed based approach 3. Select funds that get you great diversification
2
SIN #2 PICKING FUNDS SOLELY BY THEIR NAME
This happens more than we care to admit. Think about it…sexy names sell. Take for example the “Advisors’ Inner Circle Funds” (yes, that is a real fund company). Who in the world wouldn’t want invest in a mutual fund that would allow you to be a part of the coveted “inner-circle”?!?!? After all, these must be advisors that are part of some sort of elite inner-circle and surely they must have a leg-up on the rest of the world. Nope. They are just another group of men and women managing money for clients.
“IT’S LIKE ASKING MY 7 YEAR OLD DAUGHTER WHO SHE WANTS TO WIN THE BASKETBALL GAME AND SHE SAYS, THE RED TEAM.” CHRIS COSTELLO, CEO CO-FOUNDER OF BLOOOM
3
“I CAN’T AFFORD TO PUT MONEY IN MY 401K.”
SIN #3
NOT CONTRIBUTING AT ALL Every single day someone in America says this. Nearly 99% of those same people have a smart phone, pay $6 for a double-tall-iced-frappe-whatever-you-call-it coffee and blow money on meaningless phone apps. You see, for many it’s not about having the money. It’s about the choices they make WITH the money they have.
HOW DO YOU TURN YOUR SAVINGS AROUND? 1. Start by saving $20 out of your first paycheck 2. Each month increase it by $5 3. Keep going until you are saving 10% of your income 4
SIN #4
IGNORING (OR WORSE, NOT KNOWING) EXPENSES
When’s the last time you went to the summer market, blindly dumped items in your cart without looking at prices, walked up to the front of the store to check out and swiped your credit card without ever looking at the total? That’s right, NEVER. Not addressing what you are paying the fund managers is like doing the same thing. For those of you that might be unaware, ALL funds have hidden internal expenses (and other expenses too). You’ll have to do a little old fashioned research to figure out if the expenses are reasonable.
HOW TO KEEP FROM GETTING TAKEN ADVANTAGE OF: 1. Get a list of your fund options (call your HR department or look for them online) 2. Look at the Summary Plan Document (SPD) for information on the funds available 3. If you don’t have the SPD, then you can Google the ticker symbol of your fund to find the cost
5
SIN #5
THE TEMPTATION TO TINKER Your 401k isn’t like an old car in the garage that you should go out and tweak a little here and little there. It’s your retirement and often its best to leave things as-is (assuming you have the right line up of funds). When markets get choppy, many folks will want to start moving things around. That’s not always the best course of action and often times you can be your own worst enemy.
6
SIN #6
BAD BEHAVIOR: DON’T ACT LIKE A CAVEMAN.
This is easier said than done. Most folks struggle with investing and that’s because their brain gets in the way. Specifically, their Amygdala. The Amygdala makes up the central part of your brain and it works the same for everyone – it is not influenced by a college degree, yoga or IQ. And most importantly, it does not discriminate. So what does it do? It controls the emotions of freeze, fight or flight. This area of our brain gives us a fantastic biological advantage; it’s kept the human species going and going (e.g., fire hurts, bears will eat you, and steer clear of beehives). You get the point. However, when it comes to investing…the Amygdala is your worst nightmare. Why? Because you can’t just turn it off. The very thing that keeps us alive in the face of danger also triggers when other scary moments arrive at our doorstep. Oh, say…investing…or more so, when investments drop in value. As soon as the market declines, the Amygdala starts to fire up. And we, as humans, all react the same…we run for the exit. What can you do about it? The next time you see your account balance decline, don’t act like a caveman running from a bear.
7
SIN #7
NEVER LOOKING AT IT AGAIN.
Your 401k isn’t an old set of luggage you toss in the attic and decide to revisit in 20 years. Although you don’t want to tinker with your 401k on a regular basis (like chasing fund returns), this baby needs some nurturing and TLC from time to time. So here’s what to do: start with your allocations. As markets change they’ll drift and you’ll need to fix them. Plus, as you get closer to retirement you need to adjust your stock to bond ratios.
TAKING CONTROL: 1. Revisit your funds yearly 2. Rebalance them quarterly 3. Adjust the stock to bond ratio every few years
9
401KS ARE HARD. WE MAKE THEM EASY. GET YOUR 401K ANALYZED AT WWW.BLOOOM.COM
10 Past performance does not guarantee future results. All investing involves risk. Nothing in this document is to be construed as tax or legal advice. This is not intended to serve as a guide to make actual decisions on you 401k. An analysis is need to determine the best course of action for any investor.
SIN #1
FUND SELECTION BY RATE OR RETURN
Cruising down the far right-hand column of your list of 401k options for the fund that has the highest 5 year return isn’t how you should go about picking which fund to invest in. That’s like going to the dog track and betting on the dog that’s won the last five races in a row. It’s meaningless and zero indication of the best fund to invest in. The truth is that many of the funds that have negative returns will more than likely be the best formers in the years to come.
WHAT SHOULD YOU DO? 1. Research the cost of the fund 2. Seek funds that have an indexed based approach 3. Select funds that get you great diversification
2
SIN #2 PICKING FUNDS SOLELY BY THEIR NAME
This happens more than we care to admit. Think about it…sexy names sell. Take for example the “Advisors’ Inner Circle Funds” (yes, that is a real fund company). Who in the world wouldn’t want invest in a mutual fund that would allow you to be a part of the coveted “inner-circle”?!?!? After all, these must be advisors that are part of some sort of elite inner-circle and surely they must have a leg-up on the rest of the world. Nope. They are just another group of men and women managing money for clients.
“IT’S LIKE ASKING MY 7 YEAR OLD DAUGHTER WHO SHE WANTS TO WIN THE BASKETBALL GAME AND SHE SAYS, THE RED TEAM.” CHRIS COSTELLO, CEO CO-FOUNDER OF BLOOOM
3
“I CAN’T AFFORD TO PUT MONEY IN MY 401K.”
SIN #3
NOT CONTRIBUTING AT ALL Every single day someone in America says this. Nearly 99% of those same people have a smart phone, pay $6 for a double-tall-iced-frappe-whatever-you-call-it coffee and blow money on meaningless phone apps. You see, for many it’s not about having the money. It’s about the choices they make WITH the money they have.
HOW DO YOU TURN YOUR SAVINGS AROUND? 1. Start by saving $20 out of your first paycheck 2. Each month increase it by $5 3. Keep going until you are saving 10% of your income 4
SIN #4
IGNORING (OR WORSE, NOT KNOWING) EXPENSES
When’s the last time you went to the summer market, blindly dumped items in your cart without looking at prices, walked up to the front of the store to check out and swiped your credit card without ever looking at the total? That’s right, NEVER. Not addressing what you are paying the fund managers is like doing the same thing. For those of you that might be unaware, ALL funds have hidden internal expenses (and other expenses too). You’ll have to do a little old fashioned research to figure out if the expenses are reasonable.
HOW TO KEEP FROM GETTING TAKEN ADVANTAGE OF: 1. Get a list of your fund options (call your HR department or look for them online) 2. Look at the Summary Plan Document (SPD) for information on the funds available 3. If you don’t have the SPD, then you can Google the ticker symbol of your fund to find the cost
5
SIN #5
THE TEMPTATION TO TINKER Your 401k isn’t like an old car in the garage that you should go out and tweak a little here and little there. It’s your retirement and often its best to leave things as-is (assuming you have the right line up of funds). When markets get choppy, many folks will want to start moving things around. That’s not always the best course of action and often times you can be your own worst enemy.
6
SIN #6
BAD BEHAVIOR: DON’T ACT LIKE A CAVEMAN.
This is easier said than done. Most folks struggle with investing and that’s because their brain gets in the way. Specifically, their Amygdala. The Amygdala makes up the central part of your brain and it works the same for everyone – it is not influenced by a college degree, yoga or IQ. And most importantly, it does not discriminate. So what does it do? It controls the emotions of freeze, fight or flight. This area of our brain gives us a fantastic biological advantage; it’s kept the human species going and going (e.g., fire hurts, bears will eat you, and steer clear of beehives). You get the point. However, when it comes to investing…the Amygdala is your worst nightmare. Why? Because you can’t just turn it off. The very thing that keeps us alive in the face of danger also triggers when other scary moments arrive at our doorstep. Oh, say…investing…or more so, when investments drop in value. As soon as the market declines, the Amygdala starts to fire up. And we, as humans, all react the same…we run for the exit. What can you do about it? The next time you see your account balance decline, don’t act like a caveman running from a bear.
7
SIN #7
NEVER LOOKING AT IT AGAIN.
Your 401k isn’t an old set of luggage you toss in the attic and decide to revisit in 20 years. Although you don’t want to tinker with your 401k on a regular basis (like chasing fund returns), this baby needs some nurturing and TLC from time to time. So here’s what to do: start with your allocations. As markets change they’ll drift and you’ll need to fix them. Plus, as you get closer to retirement you need to adjust your stock to bond ratios.
TAKING CONTROL: 1. Revisit your funds yearly 2. Rebalance them quarterly 3. Adjust the stock to bond ratio every few years
9
401KS ARE HARD. WE MAKE THEM EASY. GET YOUR 401K ANALYZED AT WWW.BLOOOM.COM
10 Past performance does not guarantee future results. All investing involves risk. Nothing in this document is to be construed as tax or legal advice. This is not intended to serve as a guide to make actual decisions on you 401k. An analysis is need to determine the best course of action for any investor.
