Since many employers are now offering 401K plans instead of traditional pension plans, employees have to know how to invest. This seems challenging to many people who do not know much about making 401K investments. Not much is taught about investing in stocks and securities in the school system. However, this does not mean that you will have problems investing in such a plan.
Stocks have consistently returned about 10 percent or more per annum since the year 1900. However, stock returns differ from bank account returns where investors can expect to see their balances rise by 10 percent each year. With stocks, the value can increase by 15 to 20 percent in some years or drop by 10 to 15 percent in some years. In some periods, the value of stocks can increase by as much as 50 percent or reduce by 30 percent or more.
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.
To preserve your capital, you should diversify your investments. This involves investing in different types of funds and investment classes. Invest in growth, value, momentum and income funds in addition to small caps, large caps, mid caps and international stocks. This will keep you safe if one investment option fails to bring good returns.
It is also wise to invest consistently in your 401K account. If you make regular contributions, you can buy more shares at a lower price when the stock market is experiencing low returns. Putting away money on a regular basis instead of timing the ups and downs of the stock market is one of the things that allow investors to build wealth.
In order to make successful 401K investments, you should also minimize expenses that can reduce your total returns. Ideally, you should select funds that come with low fees. Low expense ratio funds are usually categorized into large cap growth, large cap value, international, small cap growth and small cap value funds.
If the company that employs you does not offer these choices, you can select 5 funds that invest in different types of companies. If you have not attained the age of 30, set up your contributions to ensure that twenty percent of your income goes into these funds. It is wise to invest ten to fifteen percent of your income into these funds or at least match the amount of money your employer contributes.
If you are older than 30, choose an income fund such as a bond fund or split your 401K investments between a REIT fund and a bond fund. Invest a percentage of contributions equal to your age into the fund. For instance, if you are 35 years old, put 35 percent into the bond fund and put the rest of your contributions into stock funds.
Stocks have consistently returned about 10 percent or more per annum since the year 1900. However, stock returns differ from bank account returns where investors can expect to see their balances rise by 10 percent each year. With stocks, the value can increase by 15 to 20 percent in some years or drop by 10 to 15 percent in some years. In some periods, the value of stocks can increase by as much as 50 percent or reduce by 30 percent or more.
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.
To preserve your capital, you should diversify your investments. This involves investing in different types of funds and investment classes. Invest in growth, value, momentum and income funds in addition to small caps, large caps, mid caps and international stocks. This will keep you safe if one investment option fails to bring good returns.
It is also wise to invest consistently in your 401K account. If you make regular contributions, you can buy more shares at a lower price when the stock market is experiencing low returns. Putting away money on a regular basis instead of timing the ups and downs of the stock market is one of the things that allow investors to build wealth.
In order to make successful 401K investments, you should also minimize expenses that can reduce your total returns. Ideally, you should select funds that come with low fees. Low expense ratio funds are usually categorized into large cap growth, large cap value, international, small cap growth and small cap value funds.
If the company that employs you does not offer these choices, you can select 5 funds that invest in different types of companies. If you have not attained the age of 30, set up your contributions to ensure that twenty percent of your income goes into these funds. It is wise to invest ten to fifteen percent of your income into these funds or at least match the amount of money your employer contributes.
If you are older than 30, choose an income fund such as a bond fund or split your 401K investments between a REIT fund and a bond fund. Invest a percentage of contributions equal to your age into the fund. For instance, if you are 35 years old, put 35 percent into the bond fund and put the rest of your contributions into stock funds.
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