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Biggest 401(k) mistakes

By Sheyna Steiner · Bankrate.com
Tuesday, October 18, 2011
Posted: 4 pm ET

The best way to ensure that your retirement portfolio consistently grows is not through complicated and arcane investing schemes but simply by putting money into your retirement account on a regular basis.

The second best way is to take the free money from your employer in the form of matching contributions if you are lucky enough to have them.

A recent study from Aon Hewitt, "Navigating the Path to Retirement: 2011 Universe Benchmarks Highlights" found that while 75.8 percent of eligible employees participated in their employer's defined contribution plan in 2010, 29 percent didn't contribute enough to get the full match from their employer.

People in their 20s were most likely to skimp on their retirement contributions, with 43 percent missing out on the full match.

The Aon Hewitt study also detailed investment behavior in retirement plans and turned up another common misstep.

Despite the strong market return in 2010, few participants initiated a transfer event. Excluding participants who fully use premixed portfolios (and thus have no need to rebalance), only 16.5 percent of participants made any sort of fund transfer during the year. This was down, once again, from 2009 when 18.2 percent of participants initiated an investment trade.

Rebalancing is a key component of successful investing. In an article in Financial Advisor Magazine from November 2010, "Rethinking Rebalancing" writer James Picerno found that regular rebalancing can increase a portfolio's returns by 50 basis points or .5 percent.

What 401(k) mistakes have you made? My shameful confession is that I cashed out my 401(k) after leaving my first job out of college. Ouch, live and learn.

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