Typically, if you auto-enroll in your company’s 401k plan, you’re invested in a default investment fund. Most of the time, the default plan is a target date fund or life cycle fund. These are diversified and include cash, stocks and bonds all inside a single fund. These types of funds rebalance the allocation and usually become safer as you get older (they take a riskier course for younger plan holders).
However, if you are automatically enrolled in one of these types of plans, they are not personalized to your individual needs. These types of funds won’t let you move your allocations around. If you want an increase in stocks and a decease in bonds, you can’t do it. Also, if you want more stocks as you near retirement, you can’t do that either.
Another faulty move a worker does is they will cash out his or her 401k when they leave that job. Nearly 50% of people who switch jobs cash out. This is especially true for younger people who think the amount is not worth keeping in the plan. All this despite having to pay income tax and a 10% penalty for early withdrawal. Instead, consider transferring your 401k to your new employer. If they don’t allow transfers or their plan is not as good as you old one, consider rolling it over into an IRA. The more you save early, the more it will grow until you retire.