Watch Out Using Money Market Accounts in Your 401(k)

One of the common mistakes investors make is that when the equities market declines they exit the market and dump their assets into a money market account. This can be a big mistake in 401(k) for two reasons.

Money Markets are currently paying a very meager interest rate. Many times below 2/10 of a percent. Unfortunately most 401(k) plans have expenses that can be over 1 percent. This means that by keeping an allocation in a Money Market account most 401(k) investors actually lose money, guaranteed, every month.

The second reason is that being “out of the market” can be extra costly. For example, during 2009, if an investor was out of the market during the 10 best days of the S&P 500, it would have reduced the annual return from 26.5% to a -17.5%.

There is no way anyone knows what day or month or year the market will be up or down. Remember your 401(k) is for the long-term. Having the right allocation is the key. Resist the temptation to “go to cash” in your 401(k).

About the author

Michael Chamberlain, CFP®

Hello. My name is Michael Chamberlain CFP®, the principal of Chamberlain Financial Planning and Wealth Management. Our firm is “fee-only” with offices in Sacramento, Campbell and Santa Cruz California. “Serving clients from the mountains to the sea.”

Our mission is to help clients realize their full potential today while planning for an abundant tomorrow through comprehensive financial planning and collaborative decision-making.

As an experienced investment and planning professional, I have had the privilege of being interviewed by and contributing to hundreds of articles in such publications as Money Magazine, Financial Planning Magazine, ABC.com, Forbes.com, Nerdwallet, NASDAQ.com, Yahoo Finance and more.

I hope that you spend some time at the FiGuide site and learn more about the financial matters important to you. To learn more about our firm, visit our website www.chamberlainfp.com or give us a call at 800-347-1340.

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