This article is contributed by Heather Johnson, a freelance writer as well as a regular commentator on the topic of credit card reviews. Heather invites your questions, comments and freelancing job inquiries at heatherjohnson2323 at gmail dot com.
Many people contribute to their retirement accounts with little planning, but it’s important now than ever that you properly set up your 401k plan. There are many ways you can maximize what you’ll end up earning through your 401k. True, there are risks involved just as with any investments that you make. If you blindly listen to your HR contact or the guy in the cubicle next to you then there’s a good chance you’re missing out on some serious money down the road. Here are five ways you can capitalize on your 401k investments:
Diversification is crucial. While the individual mutual funds offer diversity by their very nature, it’s important that you don’t load up on just one fund. The different mutual funds that are offered will vary in their financial objectives. It’s important that you discern the different risks that accompany each fund and invest according to your own objectives.
Stay away from the company stock. Many companies that offer 401k plans will offer their own company stock as an investment choice. It’s wise that if you invest in this fund that you keep it less than 10 % of your overall portfolio’s composition. You already have your financial situation in the hands of your company in the form of your salary and benefits. Keep them out of your retirement just in case they were ever to go belly up.
Go global. Many investors stick with domestic funds even as the U.S. dollar is plummeting. International funds are a stronger investment during these tumultuous economic times. This is a truly global economy and it’s time you invest accordingly. It’s wise to invest between 30 and 50 % of your portfolio in international funds.
Bigger isn’t always better. While most people invest in the large S&P 500 companies, it’s important that you invest in small companies as well. Over time, small companies will turn out a greater return than large companies. The large cap funds certainly should be represented in your portfolio but you definitely need to mix it up.
Avoid hidden fees. Be sure that your mutual fund selections are no-load funds which mean that it doesn’t cost you money to get in and out of the funds. Internal expenses of the fund are measured by the expense ratio and it’s wise to always go for the smaller of the internal expenses when it comes down to choosing one fund or another.
With these simple yet effective tips, you should be well on your way to maximizing your 401k return!
- E*Trade IRA - Official Site
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{ 4 comments… read them below or add one }
Wow, do you agree with the suggestion of 30-50% going into global funds? That seems like a huge portion of your account to invest in a sector, much less the global. I know there is so many more businesses worldwide argument but still seems high.
What are your thoughts for people to use Target Retirement funds? For someone that is not going to actively control theirs they seem to handle some for you, only problem I see is even with their 2050 retirement fund they are 10% in bonds which seems useless.
BTW your wife is a reader too I assume, let her go have some fun with her free money
philip: I actually agree with the 30-50% global rule. You need to realize that global does not mean emerging. Think about the world economy, world consumption, financial strengths etc and you wouldn’t feel like 50% is that far off base.
The only reason why we invest so much of our money in the US is because we actually live in it. If you were in China say, you might have 0% in US stocks and they will have the same question when someone said they should invest 50% in non-Chinese stocks.
Target Retirement funds are a good idea but I just don’t see why someone just can’t separate the mix themselves. I just know that the more transactions, the more money people are going to charge and that’s never a good thing. The inflexibility of these funds (as you described of 10% bonds) is another good reason to stay away.
I feel that the target retirement funds is really for the laziest of the lazy people and also the ones that just don’t want to deal with anything investments.
I’m not sure if other readers will agree to what you said about letting my wife take the money but it’s her decision. She said she will get back to me about this
Congrats to the wifey for being so lucky, but she ain’t gonna keep the money, oh nos! Family members are never eligible for one’s giveaway. C’mon! It spoils the fun!
She’s gonna hate me for this, but that’s my opinion!
Great ideas, thanks. It seems like the entire world of markets are going down. It’s getting harder to find a safe place.