|
401(k) Make a plan. Everyone should have a sound plan for achieving their retirement goals. If you don’t know how much money you need for retirement, you can’t possibly know how much to save or how to invest it. And, when times are tough, your plan will help you evaluate the damage to your portfolio. Keep making regular contributions and increase them if you can. Employer matches come in a wide variety of options depending on the employer’s discretion. Some employers match contributions dollar for dollar. Others match 25 or more cents on the dollar. That means each time you contribute, your employer adds money, for free! Often times your employer will only match up to a certain percent of your salary. But regardless, they’re adding to your retirement for you! The worst time to stop contributing to your 401(k) is when the market is down. Think about it. When the price of gas falls, do you stop filling up your car? No. If anything, you fill up more often before prices go back up. The same principle applies to your 401(k). You want to keep adding to your investments (and buy more if you can) while they’re selling at a discount. Lower prices mean you can buy more shares with the same contribution. This lowers your average cost basis and sets you up for bigger returns when the market recovers and trust me, it will recover. Review your asset allocation. The foundation of your retirement plan is your asset allocation strategy. This is the optimal mix of stocks, bonds, and cash for your portfolio. The right mix for you depends on your specific goals, time horizon, and tolerance for risk. Research shows more than 90% of your long-term investment returns are determined by your asset allocation. Right now is a critical time to review your asset allocation. While your gut’s saying sell out of stocks entirely, your asset allocation might say to buy more. Following a sound asset allocation strategy will bring discipline to your decision-making and better long-term returns. Diversify your investments and keep costs down. As the old saying goes, “don’t put all your eggs in one basket.” Spread your investments across several different mutual funds. Diversify by size of company through large-cap, mid-cap, and small-cap stock funds. Get exposure to both growth and value investment styles. And, don’t forget to include an international fund. Keep your costs down by selecting funds with lower expense ratios. The expense ratio pays for management fees and marketing costs. Don’t give away more of your money than you have to. In these tough economic times, the temptation to borrow from your 401(k) can be overwhelming. My advice is to first exhaust all other options. And, make sure the purpose of the money is important enough to justify raiding your retirement plan. Consider the consequences of taking the loan. Every dollar you take out of your plan is one less dollar providing tax-deferred growth. If you fail to repay the loan or make the scheduled interest payments, the loan could be treated as taxable income. And, some plans require borrowers to suspend making contributions to their plan for a period of time. Stock and Forex Trading Information
Related Articles -
401k, investing,
|
