This year I’ve talked to four people that didn’t know you have to log into your work provided retirement account and set your initial investments. They all assumed that the companies they worked for took care of their initial investments. They have lost out on some spectacular growth over the last five years, which was the average length of time they had each been employed, for three of them. Usually your employers retirement account will default you to a certain percentage of your pay and the deposit will go into a cash holding fund that earns no interest.
The fourth had just retired after 37 years at a single company and logged in for the first time. This fourth person was lucky, in a way, that their previous company had placed all of their contributions into the company stock. They realized it was a monumental mistake not to log in earlier and choose better investments. They are now in their 70’s, informing me that a financial planner convinced them to move the money, just under 400k, to CDs. I think thats about to be a second mistake, but that’s just my opinion. The stock did ok, but not as well as an S&P 500 index fund; had they had that fund they would probably have triple the amount. The S&P 500 has averaged 10% for the life of the fund, but the last fifteen years, at the time of this post, it’s averaged 13%.
Each assumed they were saving their money and there was nothing more to do. You don’t put money into a retirement account to save it, you put it in there to invest it. Make sure that you are contributing at least enough to get any match that your employer offers. Seriously consider increasing your contributions with every raise. For example if you get a 4% raise take half of the raise and add it to your monthly contributions. This way you’re still getting a 2% raise while contributing 2% more to your retirement accounts.