Many companies are now moving from traditional pensions to 401K plans and employees find that they have to become investors. This can seem to be a challenge for many workers because not much is taught about 401K investments in school systems especially how to invest in securities and stocks. However, investing in this kind of plan is fairly easy.
On average, the value of stocks increases by about ten percent every year. This has been consistent since 1900 even though their returns are different from the returns generated from investing money in a bank. The value of stocks can increase by fifteen to twenty percent in some years and reduce by ten to fifteen percent in others. Stock values can also increase by fifty percent or reduce by thirty percent or more during certain periods.
As you invest in a 401K plan, do not be afraid of taking worthwhile risks. Ideally, you should invest heavily in stocks when you are young and then reduce stock investments gradually when you approach retirement age. Ideally, fifty percent of your contributions should be in stocks by the time you are retiring and the other fifty percent should be invested in income generating investments such as bonds and REITs among others. Invest the money that you may need to use within five to ten years in money market accounts.
In order to preserve capital, it is essential to invest in various types of funds like income, growth, momentum and value funds. It is also important to invest in various investment classes like mid, large and small caps in addition to international stocks. In this way, if one sector performs poorly, the loss you suffer will be offset by the good performance of another sector.
Another important thing to do is to regularly invest in your 401K plan. Making consistent contributions will give you the best opportunity to buy more shares when the prices are low. Putting money aside regularly rather than timing the increases and decreases of stock values is one of the secrets of building wealth.
You should also try your best to reduce expenses so that your total returns will be higher. Select funds that have low fees. Some examples of low expense ratio funds are those categorized as small cap growth, small cap value, large cap value, international and large cap growth funds.
If your employer does not have these choices, you can choose five funds that invest in different kinds of companies. If you are younger than thirty, you should set up your contributions so that 20 percent goes into each fund every time you get paid. Ideally, you should invest 10 to 15 percent of your income or at least up to the company match.
To get the best returns when making 401K investments if you are older than thirty, you should select an income fund like a bond fund or split your contributions between a bond fund and a REIT fund. Contribute a percentage of income that is equal to your age to the bond fund. For example, if you are thirty five, put thirty five percent of your earnings into the bond fund. You can contribute the rest into stock funds.
On average, the value of stocks increases by about ten percent every year. This has been consistent since 1900 even though their returns are different from the returns generated from investing money in a bank. The value of stocks can increase by fifteen to twenty percent in some years and reduce by ten to fifteen percent in others. Stock values can also increase by fifty percent or reduce by thirty percent or more during certain periods.
As you invest in a 401K plan, do not be afraid of taking worthwhile risks. Ideally, you should invest heavily in stocks when you are young and then reduce stock investments gradually when you approach retirement age. Ideally, fifty percent of your contributions should be in stocks by the time you are retiring and the other fifty percent should be invested in income generating investments such as bonds and REITs among others. Invest the money that you may need to use within five to ten years in money market accounts.
In order to preserve capital, it is essential to invest in various types of funds like income, growth, momentum and value funds. It is also important to invest in various investment classes like mid, large and small caps in addition to international stocks. In this way, if one sector performs poorly, the loss you suffer will be offset by the good performance of another sector.
Another important thing to do is to regularly invest in your 401K plan. Making consistent contributions will give you the best opportunity to buy more shares when the prices are low. Putting money aside regularly rather than timing the increases and decreases of stock values is one of the secrets of building wealth.
You should also try your best to reduce expenses so that your total returns will be higher. Select funds that have low fees. Some examples of low expense ratio funds are those categorized as small cap growth, small cap value, large cap value, international and large cap growth funds.
If your employer does not have these choices, you can choose five funds that invest in different kinds of companies. If you are younger than thirty, you should set up your contributions so that 20 percent goes into each fund every time you get paid. Ideally, you should invest 10 to 15 percent of your income or at least up to the company match.
To get the best returns when making 401K investments if you are older than thirty, you should select an income fund like a bond fund or split your contributions between a bond fund and a REIT fund. Contribute a percentage of income that is equal to your age to the bond fund. For example, if you are thirty five, put thirty five percent of your earnings into the bond fund. You can contribute the rest into stock funds.
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