Tips to Invest Your 401k
Are you looking to get the most from your 401k or are you just getting your retirement plan setup? If so, you may be looking for helpful investment tips. Continue reading on for a few tips to get you started.
If you are just setting up your 401k account, be sure to diversify. If you have had a 401k account for years and suffered a large loss in 2008, you were not diversified enough. Most investment experts recommended mixing up 401ks. Have a collection of stocks and bonds. In terms of stocks, don’t focus on just one company or one industry. Mix it up. If the retail industry takes a hit, make sure you have stocks in the food, financial, and technology industries to help carry you along.
Be cautious with company stock. It is good to invest in your company. With that said, there are risks in holding too much stock. As previously stated, 2008 lead to many companies closing their doors. If this ever happens to your company, you lose your job. Not only that, if all of your invested stock was with your employer, you lose your retirement savings too. It is wise to invest in your company’s stocks, but also remember the importance of diversification.
Most importantly, think long-term. If you are in your 20s or 30s, you have the ability to take risks. It will be at least 25 years before you retire. For that reason, do not focus on the short-term. Yes, the stock market is bad now. Even well-known companies are seeing their stocks fall. This is expected to be a short-term problem. The market always bounces back and financial experts expect the same to happen this time. Don’t act on impulse. Instead, do a little bit of research. If the stocks you invested in are only experiencing temporary losses, wait it out.
Although it is important to think long-term, don’t ignore the obvious. Most companies on the stock market are able to weather the tough economy. They will experience losses and their stock value will dip, but most will recover. Unfortunately, not all can. This is most commonly seen in the retail industry. A number of retailers have declared bankruptcy, some have closed their doors, and others are on the verge of liquidation. Stay up-to-date on the news and listen for long-term rumblings about the companies you invested in.
If possible, do not take a loan or an early withdrawal from your 401k. This is very important, as you get closer to retirement. Early withdrawals result in a 10% penalty. 401k loans must be repaid and you are double taxed. Most importantly, your money does not grow. One of the worst things you can do is pullout your investments at the first sign of trouble. Remember, watch the news and read internet postings to learn about long-term rumors, such as company closures. Anything else is likely to be a short-term problem. Ride out the storm. Give yourself the chance to earn back the money you lost.
Finally, always remember that investing has its risks. Not everyone is able to strike it rich with the stock market. With that said, your chances are good for making money. Even if your investments do not double, but you see a 25% increase, it is money you made. You still profited.