Yeah, I know, it's hard to believe -- the words "401k" and "hot" in the same title. ;-)
I've covered this before, but this piece from Money Central does have some good information on trends in 401k investing that we should all pay attention to. Their list:
- Making retirement saving automatic. A growing number of companies have decided to harness workers' inertia by making 401(k) enrollment automatic: Employees have to opt out if they don't want to participate.
- Simplifying your investment choices. Although employers aren't necessarily disassembling their complicated plans, the average number of available options has leveled off at 14, and 65% of the companies Hewitt surveyed now offer some kinds of "life cycle" funds, which tailor investments to a person's age, or "target maturity" funds, which make investments geared to a worker's planned retirement date.
- Red-flagging company stock. Many 401(k) investors think (wrongly) that their own companies' shares are safer than a diversified mutual fund.
- Containing the fees. About half the employers Hewitt surveyed said they were looking into ways to reduce plan costs.
- Stemming cash-outs. To help stop this nonsense, more employers are making it harder to get your hands on the cash.
- Getting some advice. Hewitt found 25% of large-company employers offer individualized advice either online, over the phone or in person-to-person consultations. Another 44% of employers said they were either very or somewhat likely to add advice in the coming year.
- Implementing the Roth 401(k). Employers aren't exactly falling over themselves to offer the new Roth 401(k)s, but that could change as workers begin to understand their value.
My thoughts on these:
1. Making retirement saving automatic has two huge advantages: it keeps you from making a huge retirement mistake (not saving enough) and it puts the power of time and compounding on your side, helping you to save now and get rich.
2. For me, investment choices are simple. Index funds.
3. There are some great reasons you want to limit the amount of company stock in your 401k.
4. Expenses greatly impact your overall investment returns. By ditching expensive funds, you can save serious dough.
5. Cashing out your 401k is a great way to kill your retirement savings. Don't do it!
6. Yes, people need advice, but who can they turn too with so many salesmen posing as financial advisors out there? My advice: learn about personal finances and manage your money yourself.
7. I think the jury is still out on the Roth 401k. Time will tell how successful it is.
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