Too Many of Us are Ignoring Our 401(k)s. Here’s Why That’s Really Bad

Hand holding smartphone with stock graph
xijian/Getty Images
Some of the links in this post are from our sponsors. We provide you with accurate, reliable information. Learn more about how we make money and select our advertising partners.

With the stock market going like gangbusters, Americans’ retirement savings are growing as steadily as grass in the summertime.

Yessiree, the balances in our 401(k) accounts are hitting all-time highs. The average account holds nearly $100,000, almost a 10% increase from last year.

But a couple of new reports about 401(k) accounts suggest it’s probably time you give yours a checkup.

Here’s what these studies found:

  • Most people pretty much ignore their 401(k) plans after they sign up.
  • A lot of people have too much of their 401(k) savings in stocks, not bonds.

Wait, didn’t we just say that stocks are doing great?

Well, it’s complicated, but here goes …

Ignore Your 401(k) Plans at Your Peril

These days, a full-time job usually comes with a 401(k) retirement plan you and your employer contribute to.

Here’s a good Penny Hoarder article on 401(k) basics.

Here’s a longer one explaining everything about a 401(k).

Most people put their accounts on autopilot and rarely make any changes. In 2016, only 8% of 401(k) holders adjusted their mix of investments to be more aggressive or more conservative, according to a recent Vanguard study.

It’s one thing to stay on cruise control when you’re just starting to save for retirement. But you should be prepared to make periodic adjustments as your retirement funds grow.

One way to do this is with a robo-adviser. One we recommend is Blooom, an online investment advisory firm that’ll optimize and monitor your 401(k) for you. It gives you an initial checkup for free and tells you if you’re paying too many fees, have enough invested in stocks versus bonds, etc.

Consumer Reports also has a primer on how to give your 401(k) plan a checkup. Be prepared to boost your contributions and adjust your asset mix.

Stocks and Bonds and Risk, Oh My!

The stock market has been going up for eight years now — and hey, that’s good! Yaaaay, stock market! Whoo-HOO!

But the rising value of stocks also means this: If you haven’t been adjusting your stock-and-bond allocations, you’re probably holding way more money in stocks than you originally meant to.

That means more risk of losses when the stock market inevitably hits another rough patch.

And as the stock market continues to rally, 401(k) participants are getting more aggressive in their investing strategy.

Mutual fund giant Fidelity Investments tells USA Today that a whopping 40% of savers who are managing their own 401(k) plans are keeping more of their money in stocks than Fidelity recommends.

The crazy thing is, that’s up from 38% a year earlier. Not only that, but nearly 9% of male investors and 6% of female investors have their accounts only in stocks.

So, how much should you keep in stocks versus bonds? That depends on your age and your tolerance for risk.

Again, a service like Blooom can help you strike the right balance. The $10-per-month service — cheaper than a financial adviser — will figure out if you’re getting the most bang for your buck.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He looks forward to spending his 401(k) money on denture adhesives and Bengay when he’s 90.