You know that investing in your 401k is vital to your continued financial security, but you maybe confused by the myriad of investment choices and options currently available. If find yourself currently in a quandary over how to best invest your 401k, these simple tips can help you to make an intelligent decision, and avoid common investing mistakes.
Tip #1: Diversify:
Different types of mutual funds offer different 401k investment options, and your personal financial planner will be able to help you select the ones that best meet your investment needs. When you meet with them, ask about investing in a self-directed IRA, which allows you to spread out your 401k investments as you see fit.
Tip #2: Broaden your 401k Investment Horizons:
It may be easy to invest your 401k in only local or national markets, but if you do, you could be missing out on an investment windfall, since global investment diversification has been shown to increase investment holdings as much as 30% annually. A smart, and prudent strategy is to invest about 30% of your money in international holdings-more if you feel comfortable doing so.
Tip #3: Think Carefully Before Investing your 401k in Company-Owned Stock:
While this type of investment may sound like a win-win situation, don’t forget about what happened to certain Enron stock holders after the break-up of that company. Investing some of your 401k in your company’s stock, roughly 10%, should be sufficient enough, and will ensure your 401k security in the event that the company’s stock values take a turn for the worst.
Tip #4: Be Aware of Hidden Fees:
The majority of company-sponsored 401k investment plans don’t contain hidden fees, but there are some that do, and it is important that you find out if yours is one of them. Another thing to consider is whether your plan, like most, offers no-load mutual funds. If not, then you will need to be exceedingly cautious when it comes to 401k investment, in order to avoid being charged for investing, and subsequently withdrawing funds.
Tip #5: Bigger is Not Always Better:
Believe it or not, investing in smaller companies usually yields bigger returns than investments made in big company stock. This is because many investors focus in on large cap growth funds only. By diversifying your portfolio, you can invest in rapidly expanding companies, as well as those governed by the S&P, and reap the benefits of a diversely-invested 401k when you will need it the most.
Your Choices Shape Your Future
Even if your retirement seems as though it is light-years away, it is never too early to begin investing in your 401k. Retirement should be a time to relax and enjoy the benefits of a lifetime of hard work and smart financial strategies. Prudent investment of your 401k today will help you to achieve the goal of a more secure financial future.