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Tips For Ending 401K Confusion And Maximizing Retirement Savings

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Many find 401K plans confusing and stressful, but there are some tips everyone should know for finding out the best investment options and building up retirement savings. NY1's Tara Lynn Wagner filed the following report.

401ks are a common retirement savings tool, but they're also a common source of stress.

In a recent study by Charles Schwab, nearly half of those surveyed said they don't know what their best investment options are, and about a third said they're worried they are doing it wrong.

Professor Aron Gottesman of the Lubin School of Business is not surprised.

"This is one of the most important financial decisions a person makes in their life, and it's often a very painful decision, similar to a root canal, having to make a decision between different funds, and it's often very confusing as well," Gottesman says.

For one thing, plans can offer dozens of different funds. Making matters worse, Betterment CEO Jon Stein says there's often very little information about what those funds actually are.

"It will list something like a large cap equity fund or just the name of a fund, the titan fund, something like that. How do you know what you are investing in? So a common response to that kind of confusion is just to pick one of everything that's in there, a little bit of this, a little bit of that, and maybe you'll be okay," Stein says.

Maybe, but maybe not.

The key, says Gottesman, is for people to make sure they have a diversified portfolio with the right amount of risk.

For that, he continues, people may want to consult a financial adviser.

Gottesman also urges people to be invested in their investment and not just set it and forget it.

"I wouldn't recommend daily just for one's mental health, however, one should periodically check in on it. I suggest four times a year or every three months is a good idea," Gottesman says.

But Stein says this isn't always necessary.

He says a good plan, set up correctly, should take care of itself.

He suggests looking at target date funds, which adjust their risk level automatically, as people near and eventually enter retirement.

"It takes the guesswork out, and it takes that temptation to mess around out of it," Stein says. "A lot of people want to go in and change funds or choose something different when they get scared about what's happening in the market. That's a good way to under perform the market. On average, people who go in and mess around do worse than the market average."

Stein's advice is to pay attention to fees and contribute the maximum amount that one's employer will match.

"It's a no-brainer," Stein says. "You're leaving money on the table to not use that matching fund."

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