The 4 Do's and Don'ts of 401(K) Investing
For an individual, the 401(k) is the greatest investment deal around. Though only if it's properly managed. Here are some basics to remember when Investing in your 401(k) plan.
1) Be wary of 'over investing' in safe funds. GICs and bond funds should be kept to a minimum. Even though they are safer then many other investments, they probably won't provide enough of a return by the time retirement comes around. In the long run you stand a better chance of growing your money by investing in equity mutual funds.
2) Give as much as possible to the 401(k). Your 401(k) is most likely the best investing deal you will find, so you should maximize on this opportunity. The 401(k) plan has a maximum annual investment, and you should be contributing that amount every year.
3) Roll over your 401(k) funds directly. When you retire or switch jobs, you should not take possession of 401(k) funds, even if you are planning to invest them elsewhere. If you take possession of your funds, this you may find yourself facing big penalties and taxes.
4) The 401(k) plan is different then a home equity line or savings account. The 401(k) is a retirement plan. The money is for retirement! By drawing early you will receive penalties and taxes. Also, dipping into your 401(k) will lessen the effects of time and compounding interest on these investments. Just don't do it.
Richard Kirby
Rich has been in the investing world for 9 years, and has used multiple online investing strategies for over 4 years.
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