Steps to a Smart 401K Investment Strategy

Steps to a Smart 401K Investment Strategy
17 Feb 2020

For most Americans, investing in a 401k plan is the key to being financially stable in retirement. Unless you have a large portfolio of investments, savings, and a guaranteed income even after you stop working, chances are you need a 401k to supplement.

While you’re young, it is so imperative that you take advantage of this savings plan to live out a long, and happy retirement, being financially secure.

This guide has a few tips to help you make the most out of your 401k investment strategy.

From starting early to choosing the right savings rate, here’s a round-up of everything you need to know about getting the most out of your 401k investments.

What Is a 401k?

A 401k is defined as a tax-advantaged retirement plan typically offered by employers to employees. Employees can save a set amount of their income in this tax-sheltered account while employers match some or all of their contributions. 

Until you reach retirement age, your contributions are kept in this account earning interest and compounding. When you’re of age to withdrawal the funds, this money is often used by retirees as a source of income.

Start Investing in 401k Plans Early

When it comes to your 401k investment strategy, the most important part is starting early. The earlier you start, the more money you’ll be able to save and the longer the money will have to compound.

If you’re able to take advantage of an employer contribution plan, you’ll also get the added benefit of employer contributions.

Even at 40 years old, you may still be twenty years away from retirement. That’s 20 years of contributions and that will still add up to significant income when you retire.

In a nutshell, you want to start contributing to your 401k yesterday to make the most of it but it’s never too late to start

Maximize Your Employer Contributions

If your employer matches your contributions, essentially, whatever you put in, they do as well up to a certain amount.

This is essentially free money being given to you and it isn’t even being invested yet.

You ideally also want to maximize your contributions so that your employer gives you the most the policy allows.

If your policy has a 6% maximum contribution and your company matched 50%, that means they will give you an additional 3% on top of your contribution. 

Don’t let this free money go to waste. Take advantage of it while you’re working.

Choose Which 401k Investment Option is Right for You

When it comes to what savings rate is right for you, the answer will vary for each individual and their financial situation.

While you want to maximize it as much as possible, you also shouldn’t miss your rent payments or not be able to pay your credit card bills.

Go with what is comfortable and consider cutting back elsewhere to make the most of this opportunity.

Make the Most of Your 401k Investment Strategy

If you’re ready to seek 401k investment advice, go with a professional who can help you asses what risk level you are comfortable with and decide what a comfortable contribution amount is for you.

From starting early to maximizing employer contributions, the best time to start working on your 401k investment strategy is now. 

To get in touch with a financial advisor, fill out the contact form here, to start making the most of your retirement investments. 


Daryl Seaton