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This is a horrible mistake to make because there's no way to really fix it.

PLEASE Tell Me You’re Not Making This Disastrous Beginner Mistake with Your Retirement Funds

It has come to my attention that there may be a particularly disastrous beginner retirement fund mistake we’ve failed to warn our readers against. As they say in the extremely dramatic anime I’m currently watching: moushiwake arimasen!

Worse, it’s exactly the kind of mistake we proudly specialize in addressing: a mistake that makes you feel so freaking inept and self-conscious that you act like it didn’t happen, never speak of it again, and quietly add to the self-critical monologue that plays inside your head on nights when you cannot sleep.

No? Just us? Humph! Very well.

This mistake has to do with your retirement funds. I can’t sugar-coat this one: it’s a horrible mistake to make because there isn’t really a way to fix it. It’s like burning your popcorn: what’s done is done, there’s no way to un-burn it. But the faster you yank that stanky shit out of your microwave, the sooner you can chuck it and move on with with your life. And a fresh batch of popcorn. Make it kettle corn. Invite me!

For those of you who don’t have retirement accounts yet, read on anyway. Trust me! This is something you’ll want to keep in the back of your mind for whenever you finally do.

Quick refresher on retirement accounts

Retirement funds are monies saved for the long-term of your future dotage.

Retirement accounts are special accounts designed to hold these funds. They have more rules than a simple savings account, but also more benefits. They include IRAs, 401(k)s, and 403(b)s.

IRAs are Individual-ass Retirement Accounts. They come in two main flavors: traditional and Roth. If you forgot what the difference is, Piggy’s got your back! Go read her delightfully non-boring traditional vs. Roth breakdown.

401(k)s and 403(b)s are other forms of retirement account, but they’re tied to your employer, and have slightly different rules. There’s no significant difference between the two, other than their source. The former comes from for-profit companies, the latter from non-profits and governmental jobs.

IRAs are the most universal—if you’re an American adult, you should have one. So I’ll default to that term often, though this advice is pertinent to all forms of retirement accounts.

The disastrous, easily avoidable mistake

So what’s this potential mistake that’s got me so nervous—scratch that—fucking petrified?

I’m afraid that some people may think it’s enough to put money into your retirement account and stop there, as you might with a savings account. If that’s all you’ve done, you are not done yet. There’s one more step. And if you don’t take that step, you could screw yourself out of years of growth, adding up to a total I don’t even want to think about.

When you put money into your retirement accounts, you must also go in and allocate those funds in order for them to start growing.

This isn’t something that’s done automatically for you, because each individual will want to allocate their funds differently. But once you do it, you can safely go back to completely ignoring your IRA for months or years at a time, as I do. And you don’t have to get it “right” the first time! You can reallocate later if your goals change, or you’re unhappy with the pErFoRmAnCe of your pOrTfoLliO.

But until you pick something, your money is sitting there, completely useless, doing absolutely nothing. Like my dog Sunny.

Seriously, is this what you want your money to be like?! A sad, depreciating lump that’s never worked a day in its life?!

How fund allocation works

Think of it this way: Having money in your retirement accounts is like having a large, bomb-ass bridal party. This is a group comprised of your oldest friends, your closest family members, and your most capable core squad members.

But when the day of your wedding comes, they’re gonna sit there and smile politely, sipping champagne and adjusting their hair, until they’re given a specific job to do. Because no matter how capable they are, it would be presumptuous for them to jump in and start Doin’ Shit™ unless asked. It ain’t their wedding!

Allocating funds is like giving these people orders. “You—set up the chairs! You—wrangle the cousins for the big family photo! You—go warn the bartenders about Aunt Heather! You—for the love of god and all the saints, go find us a plate of bagels or something!”

Your money works the exact same way. You need to allocate your money (give it orders) for it to leap into action and start making even more money. Otherwise, it’s gonna sit there. Slowly depreciating. Like my faaaaaaace.

What kinds of orders can I give my money?

“What can you afford to lose?”

That’s the main question that drives fund allocation.

If you’re sixty years old and looking to retire in a few years, you can’t afford to lose much! You’ll need that money soon, so you’ll probably make extremely safe choices. Safe, predictable investments are best for them. This kind of investor is called “risk averse.”

The most risk-averse IRA would be 100% bonds, with 0% stocks, because bonds have lower risk and lower reward. (Did you forget the difference between stocks and bonds? Once again, Piggy has your ass covered so well she’s taking business away from Depends. Here’s her explanation of stocks vs. bonds.)

But if you’re twenty years old, and you plan to work for another 50 years, you’re what’s called “risk tolerant.” You can make riskier investments, and reap the juicy rewards thereof, because you have a lot more time to recoup any losses.

The most risk-tolerant IRA would be 100% stocks, with 0% bonds, because stocks have higher risk and higher reward.

Most people will have something in between these two extremes. Because I know y’all love it when we spill our personal secrets, I’ll tell you my own IRA is currently allocated at 80% stocks and 20% bonds. What?! You misconstrue my cynicism at the self-perpetuating tenacity of capitalism as generalized optimism about the performance of the so-called free market?! Draw your sword, you knave!

If the idea of researching individual companies and pegging your lifelong livelihood upon them sounds exhausting and intimidating, I have great news! Turns out that’s a terrible investment strategy anyway! Index funds and mutual funds are big pre-selected bundles of individual stocks. Way easier to choose, and way more prudent.

Plus there are more choices than ever for socially responsible funds than ever before! If you want to avoid investing in shit like tobacco and guns, embrace shit like renewable energy and sustainable agriculture, or only give your money to companies that actively promote diversity, you can!

(BTW, if that’s a topic that interests you, let us know in the comments below. If there’s enough interest, we’ll cover it in a future article!)

Okay but, how do you actually do that?

I would love to give you a step-by-step tutorial. Unfortunately, every investing platform is different. Frowny face!

Generally, you’ll need to find out who manages your account, log in to their website, click on your IRA or whatever, and see if there’s a button or tab for asset allocation. It should be relatively easy, and take you less than ten minutes. I have retirement accounts spread out over three different investing platforms, and all three offer some kind of goal calculating feature. Don’t take them as gospel—they’re not calibrated for FIREy folks! But they can at least give you a ballpark recommendation to start with.

If you’ve reached 100% allocation, it should be obvious. But if it’s at all ambiguous, don’t be shy about calling or chatting with a rep to verify. If your retirement account is provided by your employer, ask for help from HR! You’re not being annoying; helping employees navigate their benefits is a key part of their job. And if your company doesn’t have HR staff, try your manager or mentor. I’ve helped walk a lot of younger employees through setting up their first-ever IRAs. It warms my heart and brightens my day to know I’ve helped!

You can also tell by looking for frequent changes in the total value of your IRA. Invested funds fluctuate daily. So if its growth over time is a flat line, something ain’t right there.

Why is this mistake so easy to make?

A lot of our readers are young. Babies. Teeny tiny babies. And we love our little lambs, even though they’re so small we need the world’s most powerful microscope to even see them.

The way many young people start their IRAs is through their first big-kid job. To get there, they’ve gone through an arduous process of refining their resumes and cover letters, searching for jobs, preparing for everything, surviving interview after interview, getting their hearts crushed by near-misses, and burning through hella deodorant (we hope) while negotiating their first paychecks (we hope).

Oh, and the most important step: styling the same black blazer you wore to the last interview with the sleeves rolled up so that it maybe looks like a different black blazer. Pretending to be a “two black blazer kind of gal” is the first, most elemental lie a young job seeker tells.

So when you finally get your job, you think the hard work is over. Until your first day, when someone from HR hands you a fat stack of utterly incomprehensible tables comparing healthcare options, legally dubious non-competition contracts, and other byzantine horrors of the modern workplace. Somewhere in there is a big pamphlet asking you how much you would like to contribute each month to a retirement account. Or as I thought of it: how much money would I like to take out of my paycheck and gift to Old Kitty, a loathsome old bat who will definitely think bananas cost ten dollars?

Given how little financial education Americans get, most people probably pick a number they think they’ve heard before, and move on to the next piece of paper. “Was it five percent? Ten percent? Thirty percent? Am I allowed to say zero?! Fuck if I know, I’m still trying to figure out if the dot in the middle of my new work email address actually matters, or if I can omit it, or what!”

So if this is something you’ve done, don’t beat yourself up. It’s an understandable mistake. Ain’t like anybody taught you this shit!

Yeah, it sucks that you’ve missed out on valuable time for your money to grow. I think it would be awesome if investment platforms proactively reached out to people more to prompt them if funds have been sitting unallocated.

But hey! Look at it this way. Your money is still there, and today is a new day. As the old saying goes: the best day to plant a tree is twenty years ago, and the second-best day is today!

More shame-free investing tips for beginners:

27 thoughts to “PLEASE Tell Me You’re Not Making This Disastrous Beginner Mistake with Your Retirement Funds”

    1. I second this!

      My concern with these ESG funds is that yeah, they’re low(er) carbon emitters or whatever, but also, I’m not gonna say Amazon is an *ethical* company…and I struggle with weighing multiple ethical concerns (another one is Home Depot being in SHE–I love putting emphasis on women in leadership, but THD donates lots to Trump, and he’s obvi not great for women). How do you square those things? Do you just invest in these “better” funds, make lots of money, and donate generously to create the world you want? WHY IS NOTHING SIMPLE?!?!

      1. I browsed the Vanguard ESG and their largest holdings are 1) comparable to the non-ESG funds I’m investing in and 2) not exactly companies I would call socially responsible. (Seriously, Facebook?!) Besides, what’s the right choice when stocks increase in value at a rate salaries don’t and the social safety net is lacking?

  1. This is super important!

    And once you are logged into your retirement account website and you have found the index funds that you want to buy -set up automatic investments so that every month, when new funds get deposited into the retirement account, they get automatically allocated into your chosen investment and you don’t have to remember to log in every payday and do it manually!

    Which reminds me, it’s about time for me to log in and check on my 401k allocations and make sure I’m happy with what I’m buying every month!

  2. Teeny tiny misstatement. IRAs are Individual Retirement Arrangements, but we all call them accounts, anyway.

    And while ESGs are all the rave right now, if we only invest in those uber-cool, socially conscious, ultra-hip companies, who will be around to save the bad companies from within? Shareholders get votes! We need ESG-minded shareholder activists inside big oil, tech, tobacco, and other troublesome corporations to be the change we want to see in the world.

  3. This is why I am so glad that I got started with a robo-advisor. I have no idea how to pick funds so having someone else allocate it for me, even if I guess robo-advisors aren’t the best “deal” long run was a huge weight off my mind.

  4. Maybe that was an unintended “benefit” of not being eligible for retirement or health care from my first employer until I’d been there 90 days. Wayyyyy less to cover/possibly mess up on day 1. Easier to focus on just those things 3 months later.

    BTW, that gif of the cliff jumping is horrible. Every time I watched it I thought they were surely going to smash into the rocks at the bottom. (Shudder)

  5. Thank you for this! I’m always having a hard time explaining the difference between “saving” and “investing” for retirement (without scaring people), and I love the wedding analogy.

    Two quick sidenotes/addenda, if I may!

    –Target date funds are an easy way to get an (imperfect) allocation, especially if your retirement account doesn’t have the kind of asset allocation tab described above. They often have the target retirement date in the name of the fund (2045, 2050, etc.). And, even better, there are target date funds that only use index funds (I like the Fidelity Freedom Index Funds).

    –Also might be helpful to know that some workplace retirement plans will automatically keep investing you in whatever fund you pick, but some WON’T. For example, my workplace offered a SEP-IRA (small nonprofit) through Fidelity. Every quarter, my employer would contribute X dollars, which would sit in a money market account (doing bupkis) until I bought funds with it.

    1. I’ve had my retirement funds in a Vanguard target date fund for two years, and my non-retirement investments are out earning the target date fund by miles. It’s such a big difference I’ve been thinking about checking in with a Vanguard advisor.

      1. Oh geez. I am ONLY invested in a Vanguard target retirement date fund. I wonder what I’m missing out on! Do you know your asset allocation percentages for that fund?

        1. Minus the 401(k) at my current job, I have my retirement 100% in VFIFX. Looks like it’s made up of index funds which sounds good, but I’m not sure what exactly they’re indexing. My non-conservative brokerage funds are in an S&P index and growth fund.

  6. Honestly, I know I haven’t done this, but Fidelity’s platform is so obtuse and difficult to navigate that I don’t want to misstep and accidentally squander my entire retirement money. (That’s at least three money.) Plus, my workplace has no 401(k) at all, so a Roth IRA is literally all I’ve got!! It’s a good bit of stress!! I’m already 27, dear hell how many millions have I already missed out on.

  7. Such an important topic! I would not want to go 40 years thinking I was investing when really I was saving money in an account with no/grossly minimal interest, what a nightmare that would beeee!
    Also 100% yes to learning more about socially responsible funds. Yes, please!

  8. I could definitely use some help with the sustainable investments thing. I keep finding funds that are rated well based on whatever criteria some formula is using, but then when I look hard at the companies inside those funds they are…. all gross monsters??

  9. I did this EXACT mistake at my first job and missed out on the HUGE upswing in the market from 2011-2015. Every time I think about I cringe at the likely $50,000 (low-ball estimate) I missed out on:( The WORST part is that I didn’t understand “vesting” so I left my job 2 months before I was 100% vested, and only received 20% of the match. To this date, still my biggest personal finance mistake.

  10. I made this mistake in the past! and in my 2nd job, gasp! Fear not , it is now corrected (before Kitty has a heart attack).
    1st job – big company -as you say – loads of incomprehensible paperwork at the start. My dad, bless him, insisted that I go through the pension stuff with him. At the time I was 22 and would probably have opted out or put in like 2% or something equally stupid.
    2nd job though – tiny outfit, I was their 1st full time employee, and they super kindly (I thought) said we will give you pension (in the UK, there was no obligation to do this back then). Anyway, spoke to an advisor, set up an account, direct payments in monthly, yada yada. I thought I was golden.

    Cue several jobs later, me working on amalgamating all my pensions into 1… and I discovered I had never picked what funds to invest in so the money had been sitting there in cash for years (ARGH). Man, did I kick myself for that. Oh well. Lesson learnt.

    I did not calculate how many bananas future retired me has lost out due to that. If it’s even possible, I don’t want to know…

  11. This was me until this morning. Thankfully I still have a few decades to make up the lost ground but that Roth IRA could have been doing something since 2017 if I’d just invested right away. Thank you for the reminder!

  12. God, Bitches, thank you. I rolled a retirement fund from an old job over to a Roth IRA earlier this year and thought I was Done. Read this, took a peek; it was 7k just sitting in a “Settlement Fund” that did NOTHING.

    Now it’s in a target retirement fund, which I might fuss around with in the future but at least it’s now going to DO SOMETHING. Oh my god.

  13. That’s so interesting! In Australia, that all gets sorted out when you open the account. You have to choose what kind of investment strategy you want, and usually funds have a middle-of-the-road, default, option that they recommend or which will be used if you don’t choose.
    Interesting to see how things work elsewhere in the world.

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