by: Teneshia LaFaye
It’s hard to find a financial advisor you can trust because they get a nice commission when you roll your 401k and investments over to them and many of them seem to be unfazed when you try to reach them to inquire on why your investments are losing value.
So how can you tell if you’re choosing the correct financial advisor? Well, hopefully you ask for recommendations from financially-stable relatives or friends.
But one surefire way to know if the advisor has your best interest at heart is if he/she avoids the stupidest financial advice ever, according to financial advice show host Suze Orman.
The stupidest financial advice she said you can ever get, and I agree, is when an advisor tells you he or she can get you a better return on your money than your employer’s 401k program. If an advisor tells you that, he or she has no clue what they’re talking about and can’t have much experience managing assets.
How foolish to think an investment that could waiver between 3-25% be better than a guaranteed 50-300% return in an employer’s 401k. For example, if your job matches 50 cents for every dollar you contribute, that’s a 50% return. If you’re like Suze’s caller who received a 100% match, your employer doubles your contributions. And if you’re like a McDonald’s employee who receives a 300% employer match, you get 3x what you contribute.
Now compare those figures to receiving an average return of 6-8% on your investments.
So the logical decision is to max out your job’s 401k. What that means is you agree to contribute your income up to your employer’s match. So if your employer matches up to 6% of your income, you should only contribute 6% of your income to your job’s 401k plan. Then, you can consider investing some of your additional income with a financial brokerage firm or a life insurance agency.
But investing outside your job shouldn’t be your first option if your employer matches your contributions in a 401k, and you should never withdraw money from your 401k to participate in an off-the-job investment plan that has more risk than reward.
Finally, you shouldn’t even participate in any retirement plan until you have saved for a rainy day in a liquid account, like savings or a money market. You should have at least 6 months worth of expenses saved before participating in a retirement plan. I say this because, if an emergency happens and you don’t have a rainy day fund, you will be forced to take money from your retirement and if it’s in a 401K or traditional IRA, you will have to pay income taxes and a 10% early withdrawal penalty if you don’t repay the money within 60 days. So save for a rainy day fund, then participate in your employer’s 401K.
Teneshia LaFaye is a financial advisor. You can like the MyTenSense financial advice page on Facebook, www.facebook.com/mytensense and reinforce her money lessons by buying her newest book, Mom’s Money Lessons, on Amazon.
For more of her advice on retirement, credit cards, teaching your kids about money and more, visit her blog, www.mytensense.com and feel free to email her your questions or request for her to teach her financial curriculum at firstname.lastname@example.org.
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