Besides using one’s age to determine one’s asset allocation between stocks, bonds, and cash, what other common mistakes do 401k investors typically make?

There are four fairly well known ones.

• Never changing allocations
• Staying with the laggards
• Diversifying for no reason
• Being too conservative or too aggressive

These four mistakes could be really intertwined with each other because they are related.  Here’s what I mean.

The real question here is whether investors have an investment plan.  Why do they buy and sell?  Why do they own ABC fund and XYZ fund?  Or why do they own LMNOP fund and no others?  When will they buy and sell?  What is the criteria used to answer these questions?

The bottom line is do you have a plan that will help shape the how and why and when of your investment decisions over the years and decades?

To avoid these mistakes will require a plan that does answer the questions.  For our part, we rank the funds monthly in each separate plan by C, the risk-adjusted relative performance metric, we then buy and sell funds accordingly.