How To Invest 401k
Protect your future by investing 401k style. A 401k is designed so that you can build yourself a buffer for when you are too old to earn your living. Here are the best ways to determine the way to invest.
- Determine your horizon. Your investment strategy is going to be different if you are twenty than if you are forty five. Do you see yourself getting married or making any major purchases in the next couple years? If you have longer to go and you have a decent income, you can pursue an aggressive strategy. With high risk, comes high reward, but it also means that your sums will be volatile. If you are only 10 years away from retirement, you may want to stick with funds that will guarantee growth, but at a lower yield.
- Build an investment scheme based off of your horizon. Every 401k broker will have a list of funds that meet your requirements. Start putting your money into those.
- Invest in taxable options. There are many funds or investment vehicles that are tax-free, like municipal bonds or the like. A 401k is, by definition, a tax-free plan, so you will be losing out if you use it to invest in something that won't be getting you a maximum yield.
- Diversify. You should have no more than 5% of your portfolio tied up in one single fund. In addition, you should be re-evaluating your position in each fund every three months or so.
- Never stop investing. Even if the market is down, continually re-invest your money and dividends. The market has a habit of evening out. You'll see.
Posted on: May. 17, 2010