Are you certain your retirement account is properly invested?
When talking to people about their retirement plans, many people talk about the types of accounts they have (401k, 403b, Pension, IRA, etc.) without knowing if the money within the account is actually invested. Let me go deeper as I think it's incredibly important to know the difference.
Think of retirement investing in two parts. The account part and the investment part.
Part 1 is the account type. This tends to shape what you can do with the money inside and how the laws, mostly tax laws, are applied to the money within the account. Sometimes these are pre-tax accounts, meaning you can enter money into the account before you are taxed. Thus, as you would probably expect, knowing our government, you will be taxed when the money comes out on the other end. The reverse is also true; some accounts are post-tax accounts, and when you deposit money into them, it has already been taxed once, so when you take money out later it could be completely tax-free.
Part 2 is how or what you buy, sell, trade, and invest in inside of the account. If you don’t invest the money that you deposited, it will just sit there, like in a savings account. Thus, when you deposit money into the account, you then must tell the broker (Fidelity, Vanguard, financial advisor, etc.) what to do with the money.
This concept, believe it or not, is not clearly understood by many people.
I’ve encountered people over the years that have put money into a retirement account and thought they were invested, only to learn later that it wasn’t. It was just sitting there, wasting years when it could have been earning you a positive return rate. Yes, it’s in a retirement account, but if it's just a cash asset and you aren’t invested in mutual funds, bonds, stocks, etc., then you are missing interest gains and, more importantly, compound interest gains.
Many of you are using a company retirement program. I know that most HR teams do a fair job of helping to make the "default" selections positive for you. However, I use the word "default" purposely because it's normally just some standard or general fund. You might be able to do more with your account if you educated yourself a little more.
Here is your action list:
Educate yourself on the basics of retirement accounts or find a good coach.
What type of account do you have? Are they tax-free, or will you be taxed later?
Make certain that any cash assets in your accounts are properly invested.
Financial advisors who are willing to spend time teaching you are well worth the time and cost as they can really help your dollar grow further.
Financial coaches help you too. A coach focuses on you and your financial literacy with investing. We help you be a stronger advocate for yourself when working with brokerages and your advisors.
If you need help, connect with us and we’d be glad to meet you where you are and help you grow.