This is the perfect example of an unwise investment decision. Last weekend a friend said to me, “I cashed out my entire 401(k) before the tech bubble, and Thank God!, because I would have lost everything.”

This person was very proud of the decision they had made all those years years ago. I did not have the heart to tell them that they likely did some significant damage to their retirement. Let’s recap the mistakes they made so that you can learn from them:

-They let their emotions get involved. What may have seemed like a good decision 10 years ago will continue to harm them the rest of their life. When they begin to start living off their portfolio in retirement, they will be scrambling to find enough funds to meet all their expenses.

-They took the money. They didn’t just move the funds to cash; they withdrew everything incurring both penalties and taxes. They managed to ruin all the advantages of tax-deferred accounts.

-They stopped saving. There are two critical pieces to having enough funds in retirement – saving and investing. Pre-retirees need to make contributions each and every year.

-They missed out on their company match. Although not always the case, most companies will match contributions in the range of 3-6%. These are free dollars you receive only if you contribute to your account.

My guess is that they would not have lost everything. Even in the difficult period between 2008-2009, very few people saw their entire 401(k) wiped out. Only the unfortunate people who invested in company stock and worked for companies like Lehman Brothers would have experienced such a tragedy. This is exactly why we recommend against buying company stock in your 401(k). Our recommendation is for a diversified set of low-cost index funds.

As an investment advisor, I get to hear these types of stories all the time. Many people view their investment decisions as wise, yet have no idea of the long-term ramifications. Investing has to be viewed as a long-term process. Along the way you will experience both highs and lows. You might think this person was crazy, but I can tell you this story is a lot more common than you can imagine. It is never too late to take the necessary steps to get your retirement back on track. I hope you can avoid making the same mistakes.

On a slightly different note, we love to see the world waking up to the injustice investors are experiencing in the mutual fund world.  Since our inception we’ve never liked mutual funds.  A few weeks back The New York Times published a great article along those same lines.  I encourage you to give it a read: The Mutual Fund Merry-Go-Round

It’s time to wake up and realize who’s coming out on top in this deal. Hint: it’s not you. Individual investors need to take control of their financial destinies, educate themselves, avoid sales pitches, and invest in a manner that aligns with their objectives, risk tolerance, and time horizon.

Learn how to manage your own money and stick with a consistent plan. A little investment education will help you avoid unwise investment decisions. Such a strategy reduces the fees paid to the parasitic mutual fund industry, putting more in your pockets – and that’s something everyone could use these days.