What are the Most Common 401(k) Mistakes?

Believe it or not there are many mistakes that can be made along the way when it comes to financial retirement savings and investing. Unfortunately a good many of these mistakes center around the 401(k), which can be a tremendous boost to your retirement plans when used properly in order to build your portfolio. The problem is that the mistakes are often the only things we hear when it comes to retirement plans and investing. I suggest begin with the mistakes so that we can move along to better information and advice in the near future.

The first and perhaps largest mistakes that people make when it comes to 401 (k) plans is not signing up. Yes you heard that right. What people do not understand is that this is something your employer offers so that you can have some security for your future. It is a manner of saving money for your future that shouldn’t be overlooked or taken for granted. Even a bad 401 (k) plan is better than no 401 (k) and with strict regulations those are few and far between. More importantly, if your company offers to match the funds in your 401 (k) plan not taking them up on that offer is literally tossing money in the garbage can.

The next big mistake when it comes to your 401 (k) is risking too little. Rewards come with risk. If you aren’t taking any risks with your investment then you are by and large throwing money down the drain. In addition to that, it is nearly impossible to meet your retirement goals without taking some risks, and some hits along the way. This doesn’t mean you should be reckless but along the way you are going to need to take some calculated risks in order to receive the bigger payouts that most of us hope for when investing in their retirement funds.

Risking too much. There are many risks involved when investing in the stock market. There are a few that deserve a little more mention than others. First of all, stocks present a fairly large risk, particularly to the uninitiated. While it is true that great rewards are most often the product of great risks you do not want to risk the bulk of your retirement by investing it all in stocks. Another thing you want to avoid doing if at all possible is investing in your company stock. We’ve seen too many lives destroyed when companies go under taking the financial stability of their employees along with them. Many companies offer incentives to employees for investing in their stock, which may be tempting but I recommend investing as little as possible in your company stock whenever possible as this could lead to problems down the road.

Finally, the worst thing you can do for the health of your 401 (k) is borrow against it. There are so many ways in which this could go wrong and the penalties for this are more than a little prohibitive. They are designed to be that way so that you will use the funds for their intended purpose. If you absolutely have no other option is the only way I would recommend borrowing against your 401 (k) and I would seriously consider selling a kidney before doing that.

When it comes to your financial retirement, 401 (k) mistakes can be far more costly than you may realize. Work to avoid these common mistakes and you should be well on your way to a successful retirement.

Do’s and Don’ts on Buying Properties During a Recession

Purchasing real estate is no laughing matter – whether the economy’s doing well or it’s experiencing recession. It’s a well-known fact that buyers are in a better position to purchase real estate during a recession. However, there are still some risks involved. So how do you make sure you”re still getting the best real estate deal during the recession times? Here are some tips that you can make use of:

Don’t come undone with your own expectations. Determining whether you have gotten yourself a good deal in buying real estate, or simply just about anything, depends on your priorities. We all differ in priorities, that’s a fact. So if you’d like to make sure you satisfy yourself, get your own expectations in check. Creating a checklist can help you here. Finding a property to buy with a checklist handy can greatly facilitate the process.

Don’t be too you-you-you. Sure, you were advised to know your priorities and to create a checklist to boot. However, flexibility can also get you a long way. Be objective with your judgments and take a hard look at the property you are planning to buy. Think hard and see if you are actually being too choosy to the point of being impractical. Would you like fancy or functional? Is it comfy or uber-elegant? How about trying to meet in the middle? Have you asked for suggestions from experts of family or friends with experience? Do they agree with you? Although you do not need to wipe your slate clean and accommodate all their opinions, are your expectations realistic enough and what about your budget? Remember it is recession.

Don’t be over-confident during a real estate recession.  Many think that since it is recession, they can just buy and buy and buy properties. Although many property sellers are usually on the lower part of the scale during these times, not all deals are the best ones. You still need to be as careful as ever in purchasing real estate.

Before pursuing a short sale…  Many would pursue a short sale trying to grab a good deal. However, before you buy a property with a price that seems too low for the location, asking your agent to investigate if it is a short sale won’t hurt. This is important since you should not just make an offer on a pre-foreclosure, short sale property.

Beware during recession since there are not too many fish in the sea Er, properties to buy. Home sellers do know that during a recession, they may not be able to sell their properties for a better price. This means that they would have to wait longer to put their home out on the market. There may be properties for sale, but they get bought quicker, too. It would be helpful if you are prepared enough to make a purchase without dilly-dallying if you really are into it.

Recession or not…  Your decision should not be clouded in buying a property. Always shop for the lowest price, which fortunately is more attainable during recession for buyers. However, do not forget that the lowest-priced property is not necessarily the best one.

In summary, there are some advantages to buying a home during recession. However, if you do not really have the budget or are not that well-educated in the real estate industry, do not feel pressured to jump in.

Predicting and Controlling Credit Scores

Credit scores tough to predict and tough to control

Q. I check my credit score every six months on Quizzle.com and I have no negative reports, yet my score has been decreasing over the past few years. It went from over 800 six months ago to 790, and now it is 768. I went from “excellent” to “very good.” Should I be concerned, especially because I have no explanation why my scores are decreasing? In the past six months, the only changes in my credit/payment history are that I have made additional payments to decrease the amount I owe on a car loan and homeowners line of credit. Shouldn’t that increase my credit score?
– Rob

A. Even if your score is not the highest it’s ever been, it’s still pretty darn good. Credit scores can fluctuate for lots of reasons, and some, unfortunately, are out of your control.

The Brain’s experts agree.

“A credit score of 768 is still very good and will keep you in good standing for almost anything you need to do,” said Sally Herigstad, a certified public accountant with CreditCards.com. “Aside from bragging rights at parties, there is little to be gained by trying to get your credit score up to over 800 points.”

Herigstad said most mortgage bankers she talks to say their best rates are available to borrowers with scores over 740.

Some fluctuation in scores is normal and means nothing, she said.

“With a drop of 32 points and no negative reports, I suspect your available credit may have gone down,” she said. “Banks have been lowering credit limits in the last couple of years, often with little fanfare and not because of anything you have done.”

Lower credit limits will impact your credit utilization ratio, which shows how much of your available credit you’re using. For example, if you had $20,000 of available credit and you had balances of $5,000, your credit utilization ratio would be 25 percent. If your lines of credit are then lowered to $10,000 and you still have a $5,000 balance, your ratio shoots up to 50 percent. No real difference in your borrowing but you’re using more of your available credit.

The extra payments you’ve been making on your car loan and your line of credit would not hurt your score, said Adam Levin, co-founder of Credit.com.

To pinpoint why your score might have dropped, you would need to determine what’s changed in your reports over the last six months, Levin said.

While reviewing your latest report, he said you should ask yourself: Have you had any new inquiries in the past six months? Are you carrying higher balances than you were six months ago when your score was over 800? Did you close an account, or did an old, closed account fall off your credit report by chance?

“All scores are returned with a set of ‘reason codes’ or ‘score factors’ that are designed to provide specific details on why your score wasn’t higher,” Levin said. “These codes are returned in the order of importance, so the first is where you lost the most points in the score calculation, the second, the second most points and so on.”

—Karin Price Mueller

E-mail your questions to askbiz@starledger.com.