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Related topics: savings, Vanguard, 401k, retirement, financial planning

The recent rally in stocks -- last month was the best September since 1939 -- has helped beleaguered 401k account holders.

Investors who kept contributing to their 401k plans and stayed with a mix of stocks and bonds have seen a decent rebound from the lows of early 2009. Vanguard Group says the average balance of its accounts was about $73,300 as of Sept. 30, up from about $53,000 on March 31, 2009.

Even better, some of the company matches that were halted have been restored, and some of the worst practices of the past decade -- investing heavily in company stock, anyone? -- have abated. Participation rates have been steady.

But many investors may be down from the peak in 2007. And defined-contribution plans have averaged only about a 2% annual return since 2000, according to the Profit Sharing/401k Council of America, an association of plan sponsors. That means a lot of us are far short of where we had hoped to be.

Here are five common 401k mistakes and adjustments you can make to keep your retirement plans on track:

Mistake No. 1: Thinking the most important decision is how you invest your money.

Many of us agonize over selecting just the right funds or whether to put 50% or 65% into stocks.

Sure, asset allocation can have an impact on your bottom line, though it is partly a game of luck, depending on whether you catch a rally in one sector or another. Your priority, though, should be determining how much you need to save -- and figuring out how to make that happen.

Unfortunately, compared with debating mutual funds, savings "is so unsexy that nobody wants to talk about it," says Mike Alfred, the chief executive of Brightscope, which rates 401k plans.

The average participant saves 7% to 8% of pay, but many retirement-plan advisers recommend you aim for 10% or more, before including your employer match. Under Internal Revenue Service rules, you can contribute as much as $16,500 to your 401k this year, plus an additional $5,500 if you are 50 or older.

Mistake No. 2: Investing only enough to get the company match.

You don't want to leave money on the table, so you definitely want to collect whatever the company is offering. But in reality, it may not be that great a deal. Some companies eliminated the match in the last downturn, and many haven't restored it.

Much more common -- and much less discussed -- is that many companies make that match hard to collect. Matches take up to six years to vest at 60% of the companies surveyed by the Profit Sharing/401k Council and half of those surveyed by Hewitt Associates, a human-resources consulting company that recently became Aon Hewitt, a unit of Aon (AON). In some cases, you may not receive any of the match for as long as three years, or you may get only a fraction of the match each year for six years.

Given the uncertain job market, it can be dicey to count on collecting your share. Instead, save for your future and maximize the tax advantage of contributing to the plan.

Mistake No. 3: Assuming your 401k can be invested for you alone because it is for your retirement.

If you are married, don't assume your investments are just for you. Many people choose investments without weighing what their spouse is doing or what other stocks or bonds they own. Retirement-planning software offered by many companies rarely asks how other family funds are invested.

Yet all of your savings will play a role in your future comfort. So at least once a year, you should put your investments and your spouse's together and make adjustments. If your spouse's plan has better international-fund options, your spouse could invest more heavily in those while you put more in bonds. If you haven't done this before, you may find it as much an exercise in trust as in investing.

Mistake No. 4: Investing too much in your company's stock -- even after Enron and Lehman Brothers.

Last year, just 17% of companies matched employee contributions with company stock, down from 36% in 2005, according a survey by Hewitt. In addition, employees today can usually diversify those shares at any time; in 2005, more than half of the plans didn't offer that flexibility.

Still, Hewitt found that when company stock was an option, 21% of retirement-plan holdings were invested in it, an exceedingly large allocation to a single stock.

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If you have ignored your company-stock holdings, now may be the time to diversify. Vanguard recommends that your company stock not make up more than 10% of your retirement-plan money.

Mistake No. 5: Picking funds based on performance alone.

Stock and bond returns are largely unpredictable. But the one factor that is predictable is the expense rate. When deciding which funds to invest in, zero in on the ones with the lowest expenses.

The impact could surprise you. A recent Hewitt analysis found that cutting investment fees by 25 basis points, or $25 per $10,000 investment, could have the same effect as receiving an extra half-percentage-point match from your employer over your career.