1) You could forget about the account
Hard as it may be to believe, some people end up forgetting about their 401(k) account(s) entirely if they leave them with the companies they have left.
This can end up happening if you change jobs multiple times over the course of your career – especially if you leave a job when you’re young and your account balance isn’t very high.
There’s absolutely no reason to leave money on the table. Consolidating your old 401(k)s by always rolling them over into new accounts can help you ensure you never lose track of your retirement funds.
2. You could end up with an unbalanced portfolio
It’s in your best interest to have a diverse mix of assets that is appropriate for your risk tolerance level.
For example, you want your money spread across different industries and different size companies. You also want to make sure you have an appropriate amount of money in the stock market and in safer investments, given your age and investing timeline.
Unfortunately, if you have multiple 401(k) accounts with different employers, it can be harder to keep track of exactly what your asset allocation looks like.
You’ll increase the chances of being overly aggressive or overly conservative with your investments if you can’t look at your entire portfolio in one place and see the big picture. It will also be harder to periodically rebalance your portfolio as you move closer to retirement since you’ll need to log into multiple different accounts each year and move money around to get the appropriate asset mix for your current age.
3. You may be missing out on better investment opportunities
Often workplace 401(k) accounts provide a limited range of investments. These may be funds with expensive fees you have to pay. Your 401(k) may also come with administrative costs.
Paying added investment fees and being left with a narrow range of funds to invest in can deprive you of opportunities to put your money into assets that stand a better chance of providing generous returns over the long-term.
When you leave your job, you have an ideal opportunity to move your 401(k) funds into an IRA. You can open an account with a brokerage firm of your choice and gain access to a huge array of different investment options, including individual stocks and commission-free ETFs with low expense ratios.
If you are a US expat and want to talk about your options when rolling over a 401k and you want to understand the potential platforms you can use, then please email me at info@investmentsforexpats.com
