Whether through inertia or trepidation, investors who put off important investment decisions might consider the admonition offered by motivational speaker Brian Tracy: “Almost any decision is better than no decision at all.”
This investment inaction is played out in many ways, often silently, invisibly and with potential consequence to an individual’s future financial security.
Let’s review some of the forms this takes.
Your 401(k) Plan
The worst indecision may be the failure to enroll. Not only do nonparticipants sacrifice one of the best ways to save for their eventual retirement, but they also forfeit the money that any employer matching contributions represents. Not participating holds the potential to be one of the most costly indecisions one can make.
The other way individuals let indecision get the best of them is by not selecting the investments for the contributions they make to the 401(k) plan. When a participant fails to make an investment selection, the plan may have provisions for automatically investing that money. And that investment selection may not be consistent with the individual’s time horizon, risk tolerance and goals.
Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income and if taken before age 59 1/2, may be subject to a 10% federal income tax penalty.
Non-Retirement Plan Investments
For homeowners, “stuff” just seems to accumulate over time. The same may be true for investors. Some buy investments based on articles they have read or based on the recommendations of a family member. Others may have investments held in a previous employer’s 401(k) plan.
Over time, we can end up with a collection of investments that may have no connection to our investment objectives. Because of the dynamics of the markets, an investment that may have once made good sense at one time may no longer be advantageous today.
By not periodically reviewing what we own, which would allow us to cull inappropriate investments – or even determining if the portfolio reflects our current investment objectives – we are making a default decision to own investments that may be inappropriate.
Whatever your situation, your retirement investments require careful attention and may benefit from deliberate, thoughtful decision-making. Your retired self will be grateful that you invested the time, today.
This information should not be construed by any client or prospective client as the rendering of personalized investment advice. All investments and investment strategies have the potential for profit or loss, and there can be no assurance that the future performance of any specific investment or investment strategy including those discussed in this material will be profitable or equal any historical performance levels. Investment strategies such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. Any target referenced is not a prediction or projection of actual investment results and there can be no assurance that any target will be achieved. Kent Patrick is with Bush Wealth Management.
