Only 70 percent of employees under 35 take part in their employer-sponsored 401k programs, according to a 2007 study by the Congressional Research Service, compared to 82 percent of those age 35 to 44. The advantages of participating in a 401k program include tax benefits (contributed money is tax-deferred), automatic savings for retirement, and quite often, an employer match. To save the maximum amount, choose your 401k investments wisely.
The best investment is one you’re comfortable with. Mark W. Riepe, an executive with Charles Schwab, says his rule is if you can’t sleep at night because you’re concerned about your investments, then your risk level is too high. He also refers to your “capacity” for risk, which means how bold you can be in regards to your financial situation. Younger people, he says, have a larger capacity for risk because they have more time to make up losses.
Rebalance Your Investments
Every so often, check into your account and adjust the amount you have put in different investments or reallocate new contributions. Over time, percentages can change in terms of what you are invested in and this can can result in a riskier investment portfolio. Some plans allow you to choose investments that are rebalanced automatically.
Stock and bonds are common investments, but not the only ones. Other investments to consider for your 401k can include precious metals or commodities. Investing in these options might make sense because it hedges you against inflation and is unrelated to the ups and downs of the stock market, according to website Financial Planning. Some 401ks even allow investment into real estate.
Consider Your Age
Those who are under age 40 should have at least 60 percent of total asset allocations in stocks, according to MSN Money, as the typically higher returns of stocks can outweigh the chance of a bad year. However, if you plan to retire within the next 10 years, it’s best to invest in fixed-income assets or blended mutual funds.
Do your research and find out which type of investments have a good return history. There are websites dedicated to helping you find that out. If you don’t feel comfortable in choosing investments yourself, see a financial adviser, who can recommend investments based on your goals and financial situation.