Whether you just recently started contributing to your 401(k) or you’re a 401(k) veteran looking for ways to make the most of your money, there are multiple things you can do to improve your 401(k) performance. The Huffington Post recently published an article that shares 4 ways to maximize your 401(k) returns. Don’t worry, they don’t involve being a financial expert.
Choose low-cost investments. 401(k)’s are like a business – “it’s not how much you make, but how much you keep”. When choosing an investment, don’t automatically go for the low-cost one merely because it’s cheap. Yes, while high investment fees will clearly impact your return, there may be better investments that have higher fees. In the same vein, the more expensive investment doesn’t necessarily equate to the best/smartest investment. “Look for a few index type of investments in your investment menu if they are available. If there are two investments with similar returns then choose the one that costs less.”
Get ALL of the company match. if your company matches your contributions, make sure you contribute enough to get the full match. “If you saw money laying on the street, wouldn’t you pick it up?”. The match is practically the same thing. It’s free money that your company is offering in exchange for planning ahead; there is no catch. For example, if your company matches 50% on the first 7% of your pay and you make $50K, that is $1750 of free money! Take it!
Diversify, diversify, diversify. The concept of diversification basically comes down to the good ol’ saying “Don’t put all your eggs in one basket”. While the logical move may be to stick with your initial investments that have good returns, it’s important to note that markets change; “yesterday’s winners might be todays’ laggards.” Having a diversified portfolio will reduce risk and increase your chance of making money in all types of markets.
Two heads are better than one. This especially rings true when the second person is a financial advisor whose expertise, among other things, is wealth management. Seek out the advisor of your plan and ask for advice – it’s usually free. Not only will you get a better understanding of your 401(k) in general but you can potentially “improve your returns through professional investment selection.” Don’t worry about your current balance or past decisions, “the advisor is there to help, and gets paid to do it.”
To read the original article featured in the Huffington Post, click here.