Wednesday, August 15, 2012

3 Ways to Maximize your 401k

FinanceFinance (Photo credit: Tax Credits)It's easy to get the most out of your 401k, especially if you start planning early. A comfortable retirement is within the reach of anyone who takes their financial responsibilities seriously, and maximizes their 401k account. Here are some simple ways to do it:

Start Early

It is never too early to start thinking about the future, or to start learning about the fascinating world of finance. Pay attention to your investments, to your retirement, and to the economic world. Put as much as you can into your 401k, because if it is one the primary things you spend money on then you will take it seriously and tend it carefully. Although you cannot put more than $17,000 into a 401k in a year, if you can come anywhere close to that you will not regret it. Even one year of large contributions will pay well later. If you want to take the fullest possible advantage of the tax breaks, then you should contribute about $1,417 a month. That's about $327 a week. That seems like a lot, but it will be worth it. Be sure to take the fullest possible advantage of employer 401k matching to your account. That is a service that costs you nothing, but benefits you tremendously.

Diversify

Most 401ks have generous options for investing in stocks, bonds, mutual funds, and more. A diverse portfolio distributes risk and ensures that no single disaster can completely undo the fund. The beauty of the modern market is that, no matter what happens, some sector of the economy benefits. The harder it rains, the more umbrellas somebody can sell. If your 401k is used for intelligent selections from the entire financial spectrum then it will truly be an ill wind that blows no part of your portfolio any good. Please be sure to not put too much money into investing in your own company. That is counter to the principles of risk management, which are at the heart of any great investment plan. Your fortunes are already tied to your employers. Maximize your freedom, and diversify.

Take It Seriously

Assiduous attention to the financial market is the surest guarantee of a long and productive economic life. The market changes, constantly, and the only constant is change. There is no way to know what the top stocks will be in many years, when you are ready to retire. The only way to know is to pay attention from now on until then. Make your economic life part of your everyday life. Read the financial news. Not only will this give you ideas for investments, but regular contact with the financial world will keep you aware of the usual conditions and the way that major events tend to play out. This can really help you keep your sanity when strange moments find the financial market and the less-informed investors panic, lose their heads, and make emotional decisions with terrible consequences. The truly iron-willed can even find ways to make a profit in this situation.

Dan is a financial blogger and a writer for a company that provides useful information and guide here on life insurance.

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