Many investors are just plain baffled about how to invest their money. They don’t know where or how to invest to reach a comfortable retirement.
One of the best investment vehicles out there, if it’s available through your employer, is the 401k plan.
Traditional 401k plans allow for pre-tax contributions that grow tax-deferred until retirement (when withdrawals are taxed as ordinary income). Roth 401k plans allow for after-tax contributions that grow tax-deferred and are not taxed on withdrawal (they also provide more flexible withdrawals and better estate planning options).
Many employers match employee contributions. This is like getting a raise in salary, yet less than 66% of all employees eligible participate in such plans.
If a 401k plan is available to you, you should almost certainly be contributing to it.
The earlier you start saving, the sooner you don’t have to work for other people or the bigger your retirement will be. Start saving NOW!
Before you invest, you should learn a few things about the plan available from your employer. You’ll want to know your employer’s policy on matching contributions, the vesting schedule for contributing, and the plan’s maximum contributions.
The hardest part about investing in a 401k–after clearly understanding you should–is picking the right investment(s). Most plans offer anywhere from 25 to 900 choices. Almost all investors are overwhelmed by such choices.
Unlike most advisors, I don’t necessarily believe that investors should go crazy diversifying their money to the 4 corners of the investment world. There are better and worse investing opportunities, and any good investment advisor will know the difference between the two.
Don’t necessarily go for target date funds, either. Their allure seems wonderful because someone else does the thinking for you, but their high fees and necessarily mediocre performance may not meet your personal desires or your investment needs.
Finally, I would advise you not to invest in your company’s stock through such a plan. Your pay check is already dependent on the company, so you probably don’t want your retirement nest-egg to be in the same spot. The folks at Enron, Worldcom and Arthur Anderson found out the hard way what a big mistake that can be.
If you need any help making these decisions, I’d be happy to help. Just give me a call at 719-761-3148.
Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.