If you’re an investor who’s made an investment mistake, you’re not alone. Even the Oracle of Omaha himself, Warren Buffett, has made purchases that he regrets in one way or another. In an attempt to generate additional income, a retirement account, send our kids to college, or perhaps fund a vacation home, almost all investors have one thing in common — they want to make more money than what a paycheck brings in.
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But sometimes what drives us toward financial success can steer us off the intended path. I’ve highlighted three potential investment mistakes to avoid to help keep investors on the right course, and to build stronger returns while optimizing efficiency — spending less time and money to make more.
1. Underestimating the upsides of a 401(k)
When people use a 401(k) to invest for retirement, they pay no taxes on the funds they contribute in the year they make those contributions. That’s a big benefit — but it may not be the biggest one. Even better, many employers that offer 401(k)s to their employees will provide matching funds when you contribute to your account — up to a point. The average matching fund ceiling is 3.5% of your annual pay. But some investors make the mistake of not taking full advantage of their employers’ contribution matching, particularly if their company’s match limit is higher than average.
According to a national compensation survey from the Bureau of Labor Statistics, 56% of employers offer a 401(k) plan. Among them, 49% offer no matching funds. Among those employers that do, 41% offer an annual 401(k) contribution match of up to 6% of total wages. But 10% of all employers offer a match of 6% or more. So, if you work for a company with a contribution match, at a minimum you should contribute enough to get the maximum employer match.
So for those in search of a new job, how a potential employer handles their 401(k) plan can be an important factor to consider. As a reference, Southwest Airlines offers up to a 9.3% match, while Duke University provides a 13.2% match for faculty and staff with salaries between $72,000 to $305,000, no matter what the employee contributes. So, if your employer matches 6% and you’re only contributing 1% of your salary, it’s worth it to boost your contribution.
One caution is that once you put money into a 401(k), it’s not supposed to be withdrawn until you’re at least 59 1/2 years old, at which time it will be taxed. And if you pull it out early, …….