- If you are not investing enough in your 401k to get the full company match, you are leaving free money sitting on the table. You would never do that under any other circumstances, so why do it with your 401k? Many employers match 50 cents for every dollar a worker puts in, up to a percentage of the employee's salary, usually around 6 percent. That equates to $1,200 on a $40,000 salary.
- Many employers now provide an automatic escalation option for their 401k plans. The automatic escalation program allows the employee to gradually raise the amount contributed every year, up to a predetermined maximum set by the plan. The automatic escalation option takes the guesswork out of investing in the 401k and can help you accumulate a larger balance over time. Check with your employer about the availability of the automatic escalation option.
- Maintaining a balanced portfolio is very important for 401k investors. When you are young and have decades to go before retirement, you might want to keep a large portion of your portfolio in stocks, since you have plenty of time to ride out the inevitable bumps in the market. But as you get closer and closer to retirement age, you might want to scale back your stock holdings by selling some of your mutual fund shares and moving them to more stable investments like bonds and fixed income investments. If the stock market has had a particularly good year, you can transfer some of those gains into more stable investments.
- One of the challenges of investing within the 401k framework is that you have a limited number of investment options available. That means you must pick and choose your funds carefully, based on a number of factors. One of the most important factors over the long run is expenses. If you can keep your expenses lo,w you will have more money to invest with, and that extra money can continue to grow and compound year after year. Review the expenses of each fund you are considering and keep your expenses as low as possible.
next post