Investors demand a lot from their 401k retirement plan accounts. Continual growth is demanded, declines are not accepted but those expectations are a bit too high. When the economy sputters and the financial markets fluctuate with such huge swings, 401k accounts will feel the impact, that’s just what happens in the markets. The investments within your 401k account will gain in value and decrease in value throughout the investment years; that is just a consequence of being in the market.
Having the best 401k plan doesn’t mean having an account that always increases in value. Having the best 401k plan means coming out ahead by taking advantage of employer matches, making the best investment choices and making the right choices on fees. Let’s explore in greater detail 4 sure ways to make your 401k plan is the best.
A Guide To Making Your 401k Plan The Best:
1st – Employer Matching
- If your 401k plan does include an employer match – maximize your personal 401k contribution.
- An employer match really means FREE MONEY.
- If you contribute as much as you possible can (up to the limit) you are getting as much free money from your employer as possible and who doesn’t like free money.
- By making larger 401k contribution you will also receive a larger tax deferral benefit.
2nd – No Employer Matching
- If your employer does not match your contributions, continue to make your 401k contributions because you are still getting the tax deferral benefit on those contributions.
- If no match is offered you may also consider making IRA contributions after you have maximized the 401k account contribution. The reason for this is to take advantage of the tax deferral benefits.
3rd – To Make Your 401k Plan The Best – Watch Your Investment Mix
- A larger variety of investment choices within your 401k plan is not always better; all you need is enough choices to build diversity.
- A well diversified portfolio distributes your investment money into different buckets; cash, money market, small cap, mid cap and large cap and international mutual funds. By spreading your money into the different buckets, you are in effect spreading the risk. By spreading the risk you are trying to keep your investment losses to a minimum.
- Some retirement plans offer a self-directed brokerage option.
- This option allows you to invest outside the core investments offered within the plan. Individuals who use the self-directed option are very confident in their own ability to select investments. If you are a new investor or are unsure of your investment abilities, you would be better off not using the self-directed option but stick with the core investments of your retirement plan.
- Once you find an investment mix that you are comfortable with, rebalance it once a year. Rebalancing will keep your portfolio diversified with the same mix that you originally selected. Rebalancing is good, the purpose of rebalancing is to help keep the fluctuations of your portfolio to a minimum.
4th – Your Investment Fees
- You can control some of the fees you pay within your 401k retirement account by the type of mutual funds you select.
- There are a range of fees, the money market charges the lowest fees (usually zero) and the international funds usually charge the highest fees. This structure is based upon risk, the money market has no risk and international has a lot of risk.
- Each mutual fund within your 401k retirement plan has a prospectus, that prospectus will list the fees for each fund. You can ask your 401k plan administrator for a prospectus or get it online.
Making your 401k retirement account the best just takes a little work on your part: take advantage of any employer matching offered, make the right investment selections, rebalance once a year and watch the fee structures within your 401k plan. If you follow those 4 steps you will stay diversified and the impact of market gyrations on your plan balances will be less.
By not paying attention and thinking everything will work out without any effort on your part will definitely be damaging to your 401k account. Stay connected, it’s when you unplug and don’t pay attention that your 401k plan goes from being the best plan to being a bad plan.