While investing in a 401(k) has its benefits - it's automatic, your company matches a percentage of your contributions - Hennessey says there are some pitfalls you should be aware of. Often times, the fees companies charge to manage your retirement account are too high. "You have to be careful of how much you pay," says Hennessey.
Another drawback? The fund choices in your 401(k) plan may not be very diverse. You're forced to choose from the funds that your company decides to participate in, rather than make your own choices. And, according to Hennessey, "A lot of times, there are just way too many funds and it gets confusing. You can make the wrong choices if you're doing it on your own."
Finally, companies often choose to match your 401(k) contributions with stock. This can leave you with a lot of stock concentrated in one area. And that can have its drawbacks. Hennessey says "If your company goes belly-up, you're left with a lot of company match that you thought was automatic money, (and now) it's gone."
In addition to investing in your 401(k) plan, there are other ways to safe for retirement. One alternative is to put some money into an IRA. Also, consider investing on your own. But the bottom line, says Hennessey, is that once you're in your 401(k) plan, "take a look at some of things that are good and bad in it." Familiarize yourself with your fund options and the fees involved. Know your investments. After all, it's your future.
by Erin Petrun