my401kplan As you know, a 401k is a retirement savings plan.
If you are nearing retirement, you are well familiar with this plan. And maybe wishing you knew more about it before you began.
However, if you are in your 20s or haven’t given retirement much thought until now, you may be curious about 401k investing and how to get started.
What should or shouldn’t you do?
You will learn more about some of the dos and don’ts of investing here. My401kplan started in my 20s although I wish I knew some of these tips back then.
Now you can avoid some of the mistakes I’ve made and learn to invest wisely.
401K Investing Dos
Let’s start with what you should do when investing in your 401k.
Below are some tips on what you should DO:
#1. Do Have a 401K
If you are not participating in your employer’s 401k retirement savings program, start now. My401kplan started a little later then I should have.
It was a mix of not really knowing what to do or how much I needed to get started that had me put on the breaks when it came to my401kplan.
For starters, you are never too young to save for retirement. So start now you won’t need a large sum of money to start either.
In fact, the earlier you start, the more money you should have in the end. Speak to a company representative to discuss the 401k program and your options.
You will be surprised at how much you could have in your 401K by the time of your retirement. Even if you start later than your 20s.
#2. DO speak to a financial advisor.
When I was beginning with my401kplan I had a lot of question and if you are setting up your 401k, you should have many questions too.
If you only briefly catch the market report on the news, you may be clueless when it comes to stocks. That’s ok, most people feel the same way.
A common question that is asked is which type of stocks should you invest in?
Which companies perform the best? This is another good question to ask.
A financial advisor can help you get answers to these questions.
If setting up your 401k for the first time, your company may provide a free or discounted consultation with a financial advisor.
My401kplan was easy to set up because I was offered free consultation and believe me I had a lot of questions but felt better about the process when everything was completed.
I’m sure you will too.
#3. DO your own research first
Fortunately, the internet makes it easy for novice individuals to learn about the stock market.
There are many websites to choose from the wall street journal is one of them that you can view here.
Perform a standard internet search to get company names and stock symbols. Research stocks performance over the past years.
And be sure to take notes and don’t feel like you have to rush.
Another tip is to look for company reviews and projections.
Find stocks you believe you can profit from and remember this is a long term game.
Take risks if you want, but also opt for a few safer risks too. My401kplan is a bit more on the risker side, but this is a personal preference you will need to decide on for yourself.
#4. DO assess the situation if you are losing money.
When the economy is bad some financial experts advise against pulling out. As it always does, the stock market will bounce back. Again, this will be a decision you will have to make when the time comes.
#5. DO diversify your 401k
If you are young and don’t plan to retire for 20 or 30 years, you have the option to take risks. My401kplan is diversified based on advice that was given to me years ago. It was a smart decision.
You may want to invest in high-risk stocks that are profitable if they succeed.
You have time to recuperate if they don’t. That’s one of the reasons for starting young is good advice. It’s a lot harder to bounce back if you started investing close to retirement age.
And regardless, diversify, diversify, and do it again. This is what a lot of financial advisors will tell you too.
Opt for a collection of stocks and bonds. If you don’t know what that just does more research. In very little time you will know an abundance of valuable information to help you be successful.
For each, don’t rely on one company or investment to pull you through. Diversification prevents you from taking large losses.
If one stock plummets, you have others to fall back on. This is the beauty of diversifying your stocks.
401k Investing Don’ts
Now that you know some of the Do’s of 401k Investing let’s take a look at some of the Don’ts.
Below are some tips on what you Don’t want to do when 401k Investing:
#1. DON’T make the mistake of believing that now is the time to stay away from the stock market.
This was one of the mistakes I made that kept me out of investing in my401kplan for many years.
In fact, now is the perfect time to invest. The economy is booming and for the first time in a long time, there are more jobs than people to fill the positions.
The stock market is at a low.
You can buy stocks for cheap and that makes right now better than ever to start investing.
Most financial experts agree that the economy is going to continue to climb over the next couple of years.
What does this mean for you? A profit.
Possibly a very BIG one too.
#2. DON’T rely solely on the advice of a finical advisor.
Yes, these are experts in the field, but they are human too and can make mistakes.
Money managers do know how to invest, but they all have been wrong at times too.
This was seen with the Bernard Madoff scandal.
Billions of dollars were lost. You may not remember because this occurred several years ago, but it was breaking the news at the time.
Hardworking Americans believed he was handling their money as investments, but really, he was just using it to run a scam.
Before the scandal broke, Madoff was well-known and recommended. This, of course, is a rare example, but it speaks to why you can’t always rely on the advice of your financial advisor.
#3. DON’T forget about your 401k
Another mistake I made with my401kplan is to forget about it.
After setting up your 401k account, time will pass and you may just forget you even have it.
Your contributions are automatically deducted from your paycheck so it’s easy to lose track and pay no attention to it.
You want to monitor your account so you know exactly how it is performing.
You should get quarterly statements in the mail. Closely examine them.
See where you are making money and losing money. Then you can take the appropriate action.
#4. DON’T ignore obvious problems.
Yet another mistake I made with my401kplan was to ignore obvious problems.
Yes, the market should start to improve soon and most companies and their stocks will bounce back, but some may be unable to survive the wait and you may lose too much.
Use the internet to research the companies you invested in. And do your due diligence before it’s too late.
Look for any warning signs, such as poor forecasted outlooks, a large number of employees who are complaining about layoffs or reduced hours, and so forth.
All of these can be warning signs that can help you avoid bigger problems at a later date.
Conclusion
My401kplan is now in a lot better shape then it was in my 20s but I had to learn a lot of hard lessons. You can avoid some of the mistakes I made by following the tips here.
If you are in your 20s and even 30s you can usually bounce back better than someone in their 50s or 60s. And if you haven’t started a 401k plan no matter what age you are you should start one.
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