The biggest mistake you can make with your 401(k)

The biggest mistake you can make with your 401(k)
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Are you guilty of making what SmartMoney magazine once called ‘The Dumbest Investment Move’ in your 401(k) at work?

I have never been a fan of putting retirement money in employer stock. Let me be perfectly clear: I believe only employers who do not value their employees offer company stock in their 401(k) plan.

Why you shouldn’t buy stock in your own employer

When you take your 401(k) money and put it in employer stock, it’s like putting all your eggs in one basket. You’re getting your paycheck from your employer and you’re hoping to build up a healthy retirement on your employer’s back.

Doing it that way ignores that companies have a life cycle, just like people. They do well for a period and then they may lose their way over time.

Think of a company like Kodak. They were a real blue chip stock at on point no so many years ago. Now, they’re bankrupt. Or consider GM, which was for decades considered the bluest of the blue chips. They went bankrupt and are only alive and reorganized thanks to the kindness of the taxpayer bailout from you and me.

RELATED: Two-thirds of Americans aren’t using the easiest way to save for retirement

SmartMoney reports that people who have access to company stock tend to put big chunks of their retirement in it. Yet you shouldn’t feel loyal to an employer when they’re disloyal to you. What you really want to do is diversify away from your employer.

There’s an even sadder punch line to all this. You have all these companies where the corporate chiefs try to pump up the stock for stock options by having employees buy in. Then what do they do? SmartMoney says they overwhelmingly sell company stock, not buy it.

They use you as cannon fodder to drive up the price of stock so that they can exercise their options as executives and make more money at your expense. Don’t let them play you that way!

Clark Howard About the author:
Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. More about Clark
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