Plan carefully to avoid investment traps

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Troy E. Kennedy is senior vice president and shareholder with Springfield Trust Company. |ret||ret||tab|

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If you're taking a vacation, you plan carefully. You decide on a foliage tour or a visit to a theme park, a bed and breakfast or a condominium. You try to avoid the "traps" of vacation travel crowds, long waits and high prices.|ret||ret||tab|

Investing for retirement is a lot like planning for vacation. The more carefully you choose strategies, the more comfortable you'll be at retirement. |ret||ret||tab|

And, like vacation planning, you need to avoid investing traps that can snare your savings.|ret||ret||tab|

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Watch the store|ret||ret||tab|

To reach your goals, monitor investments and correct mistakes quickly. A frequent error investors make is to carefully design their 401(k) investment strategies and then expect them to perform on automatic pilot. |ret||ret||tab|

Look at the account regularly to be sure the investments are performing as anticipated. If, over a reasonable time, the investments don't meet your needs, make any necessary changes. |ret||ret||tab|

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Don't overdo it|ret||ret||tab|

You're investing for retirement, and that's a long-term proposition. Don't worry about daily market gyrations. If you sell every time an investment declines slightly, you'll not only forego some good opportunities for capital appreciation, but you'll also never have a restful moment. |ret||ret||tab|

By matching your fund's performance against that of similar funds, you'll be able to spot a trend that's not just a flash in the pan. |ret||ret||tab|

A quarterly check can tell you whether a fund is under-performing or keeping up with its peers. |ret||ret||tab|

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Don't be too conservative|ret||ret||tab|

If you invest all of your 401(k) contributions in a money market or similar fund, the risk will decrease, but so will the return. Investing in low-growth funds means that your return won't do much more than keep up with the current inflation rate. To have enough money for a comfortable retirement, you need at least some investments that offer long-term growth.|ret||ret||tab|

Diversifying investments can help you manage risk. |ret||ret||tab|

When you diversify, put some of the money in conservative investments and the rest in some that are more risky. If retirement is still a long way off, you can afford to take on riskier investments, such as growth stocks that offer the potential for high returns. |ret||ret||tab|

Even if retirement is just around the corner, some higher risk investments may be appropriate. |ret||ret||tab|

Diversification also means that investments may be less affected by market peaks and valleys. While one investment class may fall sharply, another may go up at the same time. |ret||ret||tab|

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Avoid withdrawals|ret||ret||tab|

In a financial crunch, you may be tempted to take money out of your 401(k) plan. But by taking an early withdrawal, you'll pay a penalty as well as income tax at your current tax rate. |ret||ret||tab|

If your plan offers a loan option, favorable interest rates might convince you to borrow. Just remember that any money withdrawn is not being invested for the future. Bottom line: Leave money in the plan until retirement. |ret||ret||tab|

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