401k Advice You Should Ignore

There is no shortage of personal finance and investing advice out there, most of it bad.  The guy in the cubicle across the hall may mean well (and probably even fancies himself an expert), but he is really the best source of investment advice?  Here is a list of 401k advice you should probably ignore (this list is probably equally useful when it comes to filtering out bad Roth IRA advice).

• You Should Move All Your Money To X Fund – Usually this statement is followed with a quip such as, “it’s been doing well lately.”  Oh really?  That’s nice, but what reason do you have to believe it will continue to outperform in the future?  If there’s one thing you can be certain of, it’s that the future won’t look exactly like the past.
• You Should Stop Contributing Until The Market Recovers – The foolishness of this statement should be obvious:  the best time to buy is precisely when the market is at its lowest levels!  Don’t panic if your 401k is temporarily losing money.  Instead, buy more.
• Buy Gold! – Gold bugs are an interesting lot, and every office has at least one.  While I don’t deny that commodity funds probably have a place in most long-term portfolios (and buying gold can be a part of that), you certainly shouldn’t put all or even most of your 401k contributions in gold or commodities.  Yes, your coworker’s arguments that commodities have intrinsic value and provide a good hedge against inflation are generally true, but their prices are still determined by supply and demand, just like stocks, and it’s a pain having to store the stuff (not to mention expensive).
• Stocks Are Too Risky – Yes, stocks are risky, but losing money isn’t the only risk investors face.  The biggest risk, of course, is not accumulating enough money to retire comfortably.  So go ahead, put all your contributions in the stable value fund if you want, but good luck retiring on the pittance you’ll have in your account as a result.  Nothing ventured, nothing gained.
• Diversification Is For Losers – Yikes.  I’ve actually heard this argument more than once.  The goal of investing is to maximize the odds of achieving satisfactory results, not making a fortune overnight.  Diversification is a major component of that goal.
• 401k’s Are A Scam – No they aren’t.  Over long periods of time, a diversified portfolio of stocks, bonds, and real estate will generate reasonable returns in excess of inflation the vast majority of the time.  Is your 401k guaranteed to outpace inflation over the long term if you invest intelligently?  No, but then again, nothing is ever guaranteed.  The chances of failure are infinitesimally small, though.