Do You Job Hop? Of Course it Can Affect Your Portfolio. Here's How

How much do you job hop? Whether you're dissatisfied by potential opportunities with a particular job, don't enjoy the cultural fit of a company or simply don't like the work, it can affect both your short- and long-term savings. You might think, "Well, of course!" The 

The number of companies people worked for in the five years after they graduated has nearly doubled in the past 20 years, according to LinkedIn. For example, people who graduated between 1986 and 1990 averaged more than 1.6 jobs. In contrast, individuals who graduated between 2006 and 2010 averaged nearly 2.85 jobs. 

Let's discuss why people job hop and how it can affect your portfolio.

Reasons People Job Hop

How do you qualify as a job hopper? You may have moved from one company to another at least once a year or two or so years in a row. You may have moved companies or jobs more than a couple of times with no particular reason or changed a number of jobs in a row.

The downsides to job-hopping include:

• Missing out on advancement opportunities
• Becoming the first to be dismissed (a company may be more apt to keep employees who have served for a while)
• Possible development of a lack of self-confidence
• Never learning the inner workings of the job
• Hiring managers may take note of your frequent job changes
• Weakening of your resume

Why do people job hop? Take a look at a few reasons below.

Lack of Focus

Some job hoppers do so because they don't have an understanding of what they want in their careers. This lack of focus can require you to have to consistently relearn systems and procedures at a new job and constantly have to get used to a new company culture as you constantly change job locations. 

Cannot Meet Specific Job Demands

Do you struggle to meet job demands? You may find that you communicate poorly, get distracted, face unrealistic deadlines and have poor time management qualities. Maybe you need help in the job, need to hire a coach or tutor or need additional education through a short course. 

Burnout

It's common to suffer burnout due to heavier workloads, workplace stressors, toxic work environments and general uncertainty about work and the economy. All of these factors can enhance feelings of burnout.

More than four in 10 employees (44%) say they suffered burnout on the job in 2021, compared to 2020, according to a new survey of 2,800 workers from global staffing firm Robert Half. 

How Job Hopping Can Affect Your Portfolio

There's no question that job hopping can affect your retirement and immediate savings. We'll focus on specifically how changing jobs frequently can affect your short- and long-term savings.

Reason 1: Waiting periods can add up.

Many employer retirement plans require waiting periods before you can become eligible. In some cases, you could wait up to a year to qualify to contribute. If you constantly change jobs and must face a waiting period for each job, you could miss out on years of savings opportunities. 

Sure, you can open up an IRA. However, remember that the contribution limits for IRAs are lower than 401(k)s. Roth IRA and traditional IRAs can't be more than $6,000 ($7,000 if you're age 50 or older). On the other hand, the 401(k) contribution limits $19,500 in 2021 ($6,500 if you're 50 or older). 

Reason 2: You must wait for vesting.

You don't get to take advantage of your company's matching contributions until you're completely vested. It's important to find out how long it takes to become vested at any company you join — many companies require you to work at the company for around three to five years before you own the matching contributions. You'll lose the money if you leave before that time frame ends. 

Reason 3: You lose out on momentum and compounding.

Compound interest occurs when interest builds on the principal amount over time. Compounding refers to interest on interest, which increases the impact of interest over time. Many experts refer to it as the "miracle of compounding."

When you don't get started early on in your career by saving and building on compound interest, you consistently lose out on that "miracle."

When you start saving outweighs how much you save. An investment left alone for a period of decades can really add up even if you never invest another dime. However, consistently saving can make a difference. Let's take a look at a simple compound interest calculation. 

Let's say you invest $10,000. If it compounds annually at 7% and you never add any money to that amount, you'll have close to $76,200. On the other hand, let's say you invest $10,000 but add $400 to that amount every month. That figure, compounded annually at 7% over 30 years, would leave you with close to $530,000.

Getting money into an employer-sponsored tax advantaged retirement account and consistently adding to it means you would benefit most from compound interest. Job hopping can prevent you from adding thousands of dollars in compound interest to your portfolio.

Reason 4: You may be tempted to pull money out of your retirement accounts.

Employment inconsistency can encourage you to pull money out of your retirement accounts. Last year, during the coronavirus pandemic, about 14% of individuals with retirement savings took money from accounts, including 401(k)s and individual retirement accounts, according to CNBC.

Instead of spending the money, you can roll it into your current employer's plan, roll it into a traditional IRA or put the money into a Roth IRA.

If you take the money out of your retirement accounts, you'll pay penalties if you withdraw before age 59½. Your money will be subject to both ordinary income taxes and a potential10% early withdrawal penalty.

Job Hopping Can Hurt Your Savings

Finally, the most troubling consideration: You could drastically harm your chances of finding new employment. If you can't get a job, you can't save. If employers believe that you won't stay for more than a year, prospective employers may decide it's not worth it to hire you.