The $4 Million Mistake Many In Corporate Make

It's Way Too Common...

March 15, 2024

Earners,

There's nothing more wonderful than free money.

Fortunately, for those of us in the corporate world, our companies often provide retirement plans and incentivize us to use them by offering a company match on our contributions. Essentially, they give us free money if we choose to invest in our futures.

It's fantastic, but people often make big time mistakes with it. I’ve got great news for you though - you’re not going to be one of them after this article.

Gimme Da Loot

When you start a new job, the offer usually includes a company-sponsored retirement plan as one of the perks. It's an incentive for you to save for your retirement. But why would your company offer you free money to do something that benefits you?

Obviously, the well-being of the company's employees matters, and it’s a perk. More specifically though, the landscape of pensions has changed dramatically over the last few decades. It used to be common to work 30 to 40 years at one company, then receive a lifetime sack of money known as a defined benefit pension.

Nowadays, those are quite rare. The norm is the company match, also known as a defined contribution pension, which requires you to contribute alongside your employer.

Let's say, for example, that your company will match up to 5% of your salary to your retirement account. If 5% of your salary per paycheck is $100, and you contribute that to the employee sponsored plan, your company will match it with another $100. That's essentially a 100% return on your investment. Pretty baller.

Now, here's the crux of this article and where people screw this up dearly. It's great that you're achieving a 100% return, but without this crucial last step, you could be leaving hundreds of thousands, if not millions, of dollars on the table.

You absolutely, positively, one hundred billion trillion quadrillion percent need to ensure that you are investing the money going into this plan. Companies are absolutely BRUTAL at educating their employees about the different investments available. They typically delegate this responsibility to the benefits provider or the company handling the investments. They may offer a helpline, but who even calls those things? Well, I did - and they didn’t know much at all! For most situations, you have to take the initiative to educate yourself, which can be really irritating if you're unfamiliar with such matters.

I once attempted to start an employee resource group at a previous company to educate employees about the various investment options. Without investing the money that people are contributing to this plan, they pay an egregious price. I didn’t get very far with this idea (classic corporate risk mitigation), but damn it I saw firsthand how significant the problem was. I literally met someone who was well on his way to the example below.

Let's look at how much this screw up will cost you.

So Much It’ll Make You Sick

I’m sure you’ve noticed I love to talk about million dollar outcomes - and why the hell shouldn’t I? Here’s another one for you that will make sure you always invest your contributions.

Let’s say you make $60,000 a year for the rest of your life (you would obviously make more, but let’s keep it simple). Let’s also say you stick with the same company (which again you wouldn’t do because you’re sharp but I digress) and they match your retirement contributions 5% and you take full advantage of that.

Sweet - that means you’re contributing $250 a month and so is your employer, for a total of $500 / month.

If you just keep putting the money in, but don’t invest it, you’ll have $240,500 after 40 years, which is cool.

But, if you invested in a broad market US fund that many providers offer and got the historical average of 9.8%, you would have $2,647,317… this would be on TOP of all your other savings and investments you likely would have made throughout your life. Also, you would have made way more money as your earnings would have grown year over year most likely. After some rough calculations that I won’t bore you with here, with a super conservative earnings growth, a more realistic figure is north of $4,000,000 in opportunity cost.

It’s a sickening amount of money to lose for not taking 3 minutes to click some buttons and direct the money into a different pot.

I actually had someone that was on this path and luckily they caught it while they were still pretty young. I sound like I am talking about some disease - that’s because lost financial opportunity makes me physically ill.

BUT WHAT DO I PUT IT IN?

More investing stuff coming here soon - and obviously, I am not an investment advisor and this is not advice, so invest what you will at your own risk. I don’t know your specific situation so I can’t tell you if the below is for YOU - I can just say what I think is a good idea to consider.

With all that being said, at a high level a lot of firms have started to offer index funds / mutual funds that actually have quite low management fees (0.15% and below) and track the market pretty well. Low cost broad market funds are a fantastic option. Ones that track the US broad market or the S&P 500 are solid. Some companies also have these products called target date funds. These are awesome because they reinvest in different stuff over your lifetime so that you don’t have to even think about the asset allocation (what EXACTLY your money is invested into).

Picking a nice low cost index fund or target date fund is a pretty reasonable choice for the vast majority of folks and can lead to those million-dollar outcomes you’re looking for. Here’s some more info on index and target date funds:

Overall…just put that money to work, baby. It takes little time and makes big money

Questions? Reply to this email and I’ll try to help you out!

Earn more,

Nate