Previously I wrote about the Most Important Factor and the Second Most Important Factor to Investing Success. Continuing this streak I’ll give you the third most important factor to investing success: Leave it alone.
To recap: The most important factor is to continuously save and add to your nest egg over your career; the second factor is allocation – make sure you’re investing in a diversified allocation that will grow over time.
The third most important factor to investing success: Once you’ve started investing, leave it alone. Resist the temptation to sell off the component of your allocation plan that’s lagging; the reason you have a diversified allocation is so that some pieces will lag while others flourish, and vice-versa.
Reallocate your funds from time to time (once a year at most) to match your allocation plan, but that’s all the fussing you should do with your investments. Leave it alone.
In addition to resisting temptation to fiddle with the investments, don’t take out a loan from your account. Even though this may seem like a good alternative to other loan sources, your best option is to disregard the 401k loan as an alternative altogether. Taking a loan puts you behind the eight ball – having to pay back the loan will likely take over your ability to save consistently (Factor #1) and will have a portion of your funds allocated to a loan instead of your growth allocation (Factor #2).