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Investing Specialists

The Error-Proof Portfolio: 8 Mistakes That Even Sophisticated Investors Make With Their 401(k)s

Think only newbies make mistakes with their company retirement plans? Think again.

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The 401(k) plan is ripe for blunders. Most people make their allocations under less-than-ideal circumstances--shortly after they've started new jobs, when they've no doubt got a lot of other pressing matters on their minds. And despite the trend toward participant education and simple solutions like target-retirement funds, 401(k) plans are still far from goof-proof. In helping a friend's daughter reallocate her company retirement plan, I noticed that this young worker was contributing equal amounts to each of her plan's options. That included a contribution to the stable-value fund--arguably not appropriate for a 22-year-old--as well as equal allocations to the plan's "Retirement 2025," "Retirement 2035," "Retirement 2045," and "Retirement 2055" options.

Yet 401(k) mistakes aren't strictly the province of newbies: Many investors with higher sophistication levels misunderstand and misuse their plans, too. What follows are some common mistakes that even more knowledgeable investors might be making. Note that these mistakes don't apply strictly to 401(k) investors but may relate to 403(b) and 457 plan investors, as well.

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.