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401(k) Investment Strategies to Help You Retire Comfortably
In order for a 401(k) retirement plan to be successful, it very important that you put together the best possible 401(k) investment package you can. There are of course varying opinions as to what the best investment plan is and this is also likely to vary somewhat from one person to the next. Since in most cases the company you work for will be administering your 401(k) investments for you, your options may also differ.
One thing that you do need to realize, it cannot be stressed enough that you pay very close attention to where your money is invested. The money you are investing today is the money that you are going to be counting on to live on when you retire. If you make the right investments as you go along, you will be able to enjoy a decent standard of living later on in life when you are retired. Conversely, if you make the wrong choices, you retirement account can literally be wiped out, leaving you with nothing to retire on.
Where Not to Make Your 401(k) Investment
If you for a major publicly traded company, the first 401(k) investment option you are likely to find that the first option on your enrollment form will to buy stocks in your own company. While this might seem like a good idea, you might be surprised to find out that the majority of investment advisors will tell you that this is not likely to be your best investment option.
You have to look at it realistically, even though your company might be doing great at the moment, it does not take much anymore for a company's fortunes to change. If you put too much of your investment into your company and the company hits hard times, not only are you likely to be out of work, but your retirement will take heavy losses. If you want to seem like you are a team player, go ahead and invest 10%, but no more.
Playing It Safe with Your 401(k) Investment
When you look at most 401(k) plans, you will find that they offer a Stable Account, this is a safe investment option that is going to pay a set amount of interest each year. This interest rate is typically higher that any you might expect to see in a standard savings plan outside of your 401(k). This is a good place to invest any money that you want to invest conservatively as a backup.
Another option here might be a money market fund; however the majority of these are not currently paying enough to be considered worth investing in. The only time you should place your "safe investment" money in one of these accounts is when you do not have the option of a stable account available to you.
What Are My Best 401(k) Investment Options?
While thoughts as to what constitutes the best 401(k) investment options for maximum growth are going go to vary from one financial guru to another, there is at least some consensus of opinion overall. What you are left with after investing in your own company stock and a stable account are bonds, mutual funds, stocks and target funds. Many people are turning to target funds as they are fully managed with the idea that your money will be invested in stocks and bonds for you. The only problems is that the costs are relatively high and can negate too much of the growth.
This leaves you with stocks and bonds, here again most people are of the opinion that bonds are a very safe investment. This is not necessarily true, but they do represent both a higher degree of safety over stocks and a higher interest income. Stocks as always represent the highest opportunity for growth over the long term, remember you are not looking at annual dividends so much as a steady increase in stock value. This way when the time comes to retire, you have the option to sell off your stock for a much higher value than the money you have invested in it.
If you are looking for the absolute best 401(k) investment strategy, there is one thing that all financial experts agree on and that is diversification. In order to maximize income potential and minimize the risk of loss, you should plan to spread your 401(k) money into a well-balanced blend of investments. Placing all of your eggs in one basket is the surest way to end up losing your nest egg.