When Should You NOT Invest In A 401(k) Plan?
Conventional wisdom says to start saving for the long-term early, and do so in a 401(k) plan. When it comes to retirement saving, this is always the Golden Rule of Investing. As a prudent steward of God’s money, I say challenge conventional wisdom because conventional wisdom can become outdated. There are times when it doesn’t make sense to invest into a 401(k) plan.
- When you don’t have an emergency account established
This never made sense to me. Why save and invest for the long-term when the short-term is left exposed? You can have all types of savings put back for the long-term. Yet, if something were to happen in the short-term, that long-term money does you no good. Consider taking care of the short-term before you start taking care of the long-term. Without an emergency account established, the credit card becomes the next best alternative.
- When there are limited investment options
It is tough to get real strong diversification in a portfolio when there are limited options available. I have come across 401(k) plans that are limited to as little 4 or 5 funds. It is tough to really protect for risk. Make sure that there are plenty of fund options available to where you can put together a well-diversified investment portfolio.
- When the fees are too high
Most people don’t have any idea of how much they are paying when it comes to 401(k) investment fees. This typically isn’t published by the employer. A plan that has real high fees can be detriment long-term. If that is the case, you really need to weigh your options. If you are unsure of how much you are paying in fees, try this resource: www.americasbest401k.com/401k-fee-checker/
- No Match
Now, if you have high fees, limited investment choices, and no employer match, then the deck is loaded against your 401(k) plan. An employer match is really the only real good reason to invest into a 401(k) plan. You can’t argue with the concept of free money. In fact, it really makes sense to invest up until you get the full amount of the match, and then investing any remaining money somewhere else.
Remember, as a prudent Steward of God’s money, make sure you are being wise. Just because you have access to a 401(k) plan doesn’t mean that is a good idea.