According to personal finance experts Ramit Sethiabout half of the people he talked to didn’t even consider their 401(k) an investment.
“When I asked about their investments, about 50 percent did not view the 401(k) plan as an investment,” Sethi wrote in a recent article on X. “They viewed it as something entirely separate.”
This schizophrenia may seem small, but it can have real consequences. A 401(k) is typically a person’s largest investment account. If someone doesn’t view it as part of an overall portfolio, they may misunderstand how much they’re actually investing, how their money is allocated, or how much risk they’re taking.
Sisi has long argued that many Americans have major blind spots when it comes to money. In a video last year, he said being financially successful doesn’t require a six-figure salary or cutting out every little pleasure. Instead, he said it starts with understanding some basic numbers.
“Half the people I talk to don’t even know their annual income,” he said. “Ninety percent of people don’t know the total amount of their debt. Ninety-five percent don’t even know when their debt will be paid off.”
He also urged people to calculate their “burn rate,” which is their total monthly expenses. He said many people guessed a round number, but once they actually added up their bank and credit card statements, “whatever number they came up with, it was much higher.”
The same lack of clarity often occurs with retirement accounts. People contribute automatically through work, but they don’t connect that money to a broader investment strategy. Therefore, they may say they “don’t invest” even though they have been investing through their 401(k) for years.
trend: One bad hire can set a startup back years. Here are the 5 most common employees founders misjudge — and why
Sethi’s broader message is that clarity should lead to action. He encourages people to automate their finances so that money can be moved to where it is needed without constant decision-making.
Instead of saving the money left over at the end of the month, he “pays himself first.” That means automatic contributions to 401(k)s, transfers to savings and investments, and automatic bill payments.
When it comes to investing, Sethi prefers simple, low-cost index funds or target-date funds. “Smart investors do a lot less work than you think,” he said in the video. “They don’t sit down and pick stocks. They don’t obsess over CNBC. They start early, they stay consistent, and investing is boring.”
