The Motley Fool lists three common mistakes that can hurt your 401(k) returns in the long run:
1. Chasing performance: When choosing funds for your retirement plan, recent rankings can seem like a safe bet—but focusing on short-term performance can be the kiss of death for your retirement nest egg. Short-term trends can come and go, but long-term performance is much more indicative of a manager's true abilities. It's also easy to put your money in the hottest sector—forgetting that if you wait for a sector of the market to run up before you get in, you've probably already missed much of the upside. Chasing hot recent performance is akin to buying high and selling low—a losing prescription if ever there were one.
2. Trying to play it safe: Watching your investments lose money, especially when it comes to retirement savings, can spur you into "playing it safe" with money market funds and low-yielding bond funds. But the truth is that nobody ever built a retirement nest egg by investing in money market funds—because they rarely outperform even the annual interest rate, much less the S&P 500. If long-term growth is your goal, stocks or stock mutual funds should be your investment of choice.
3. Picking bad, and costly, investments: Unfortunately, not all 401(k)s are created equal. Many contain funds that are expensive, poorly performing, or both—and it means some participants can end up throwing away more than 2 percent of their assets every year in management fees and expenses. But as long as your company provides a match—and you're contributing enough to take advantage of it—even mediocre 401(k) choices are better than not participating. You can always invest in an index fund with minimal fees or ask your plan administrator to provide better funds.