I just finished reading “Most Common Investment Mistakes for Beginners” and it’s the umpteenth iteration I’ve read online. It’s become a hobby of mine to read these posts and see if an author will finally mention the big 401k elephant sitting around the cubicle farm, but I’m always disappointed. I suppose that it’s up to me then. Don’t copy the asset allocation of your co-worker!
I’m hoping that this doesn’t need a lot of explanation, but I’m tired of waking my office halls and hearing armchair stock traders give away their secret asset allocation to the newly hired young adult. Following someone else’ asset allocation is a terrible mistake that many new employees make.
I understand why. You are given several forms to fill out when you are first hired: insurance, W2 and an endless number of company policies. By the time you get to setting up your 401k, who has time to look over dozens of prospectuses and learn about what funds are right for your investment goals. Beside, the guy next to you seems to be doing well, what’s the harm in copying someone else’s investment strategy?
Everyone has a different risk tolerance and it’s important to decide your own sensitivity. You can lose massive chunks of your savings in a short amount of time. At the same time, it’s easy to take on too little risk and watch your savings stagnate or dwindle when matched with inflation. It’s good to take calculated risks that can earn you a justifiable return. However, you don’t want to be shocked by unexpected losses or stagnation from too much or too little risk exposure.
If your co-worker is a smart investor, they’ve thought long and hard about the risks to their portfolios. They’ve fine tuned their investments to fit them personally, which is precisely why their allocation is not going to work for you.
Retirement Needs and Goals
Is your co-worker the same age? Have the exact same financial situation? Striving for the exact same retirement?
Your asset allocation needs to reflect the realities of your unique situation. Your allocations should change as you age. You might need to take on more risk if you are behind in saving. You’ll need safer investments as you near retirement age. You may dream of a more lavish retirement. All these little factors need to be considered when investing. Unless, you are copying from a co-worker clone, you’ll need to plan out your own portfolio.
Sidestepping Bear Traps
How much time and effort has a co-worker really put into their retirement efforts? Do they chase returns and neglect investment details like portfolio fees?
The average person is completely unaware of some of the finer details of investing. For example, although funds may encompass large volumes of stock in different companies, some funds are targeted towards individual industries, like gold and need to be diversified with a more balanced fund.
Different funds have different fees. Those fees will negatively impact your fund’s long-term growth.
Does your co-worker understand and account for this?
Get Professional Help
If you are tempted to copy a co-worker’s 401k allocation, then it should be a sign that you need to talk to an investment professional. I know this opens up other issues about who you can trust and if the advice is worth the money. However, there are few financial decisions more complicated than your retirement. It’s worth spending some money to do it right.
When in the office:
- Copy your boss in on your important emails and cover yourself
- Copy and save your performance reviews, they look good in future interviews
- Copy and paste shortcuts for Office are a great way to be more efficient in Excel
- Please, never copy your co-worker’s 401k asset allocation!
Have you ever seen c0-workers copying 401k allocations? What other investing mistakes are common from your co-workers?