How to Structure Your 401(k)

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Do you currently have a 401(k) or a 403(b) through the company you work for? Just a few weeks after I started my new job here in Michigan, I set up my 401(k). Since I started with a whopping $0.00, I didn’t think too much about my selections, but now that my investments will soon be valued at more than $10,000, I figured that I’d better start figuring out if my picks match my investing strategy.

Did I Get the Thumbs Up From My Advisor?

A few days ago, I met with an advisor (which was free through my company program) to see how I was doing. I’m not a professional investor, but I like to think that my knowledge is greater than the average Joe. Rather than just picking my mutual funds blindly, I took into account the fees and the average returns. From my analysis, I chose 3 of the options. I put 50% of my investments toward one and 25% for the others.

While my investments did match my aggressive growth strategy (since I’m young and I can afford to lose a bit), my advisor did not like the fact that I had all of my money in only 3 mutual funds. Plus, these funds were all domestic. He felt that for safety, I should at least have 15% of my investments in an international fund.

Based on my advisor’s advice, I have taken on 2 new mutual funds. Both of them have very low fees and there are international investments within each of them. I now have a more balanced portfolio that will reduce my risk, but still hold a decent return on my investment.

What About Your 401(k)?

If you currently have a 401(k) or 403(b), I’m just guessing that you haven’t paid too much attention to it, especially if you are not nearing retirement age. While I know that you really don’t need to worry about retirement money at this point, you really should make sure that you are investing your money properly in order to yield the greatest results. After all, it could mean the difference between eating spam or steak in your “golden years”.

When you look at your investments in the near-future, be sure that you have considered the wise advice below:

  • Invest in more than 3 different funds (preferably at least 5)
  • Be sure to include large cap, small cap, bond, and international funds to your portfolio
  • Set up automatic re-balancing for the best results
  • Choose index funds if you can – the fees are extremely low and perform just as well or better than a fully managed mutual fund
  • If you are nearing retirement, shift more of your investments toward less-volatile options like bonds or large cap stocks that yield a dividend.
  • Don’t depend only on this investment for your retirement – invest in other areas as well (real estate, businesses, etc.)

Follow the advice above, and you’ll most likely do quite well with your investments.

Do you invest in your company 401(k)? How do you think you are doing?

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Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

9 Comments

    • We’re in West Michigan, near Grand Rapids.

  1. When you left FL???

    I have several IRAs (Roth, Simple, Sep). I used to have a 401k before I started my business. 401k are great if your company matches…if they dont I believe that Iras are better. The problem with 401k is poor choices and upfront costs. 5% of what you contribute every paycheck go to the broker as load fees.

    • We left florida about a year and a half ago. It feels like just a couple of weeks ago. Time flies!

  2. I become elligible for my 401k this paycheck and you bet I’m participating. There aren’t a ton of options but I am putting my money into a target date fund. It matches the allocation I would want anyway and has low fees. I’ll check on it from time to time to make sure it is acheiving my objective and will move out of it if it isn’t.
    Lance@MoneyLife&More recently posted..An Easy Way to Save Money (and Calories) While Dining Out

  3. Greetings

    Something interesting about 401k is that some companies increases your contributions, for example they’ll deposit $0.60 cents for every $ 1.00 of our contribution, but not all employers offers this. Furthermore, the enhancement that i see,is that it’s deducted before taxes, that’s great from one point of view,but my question is; how is this going to reflected in my taxes return ? And, why has to be done before retirement? I know the story, that it’s safer and it’s better to have your investments spread, because it represent less risk, but I have my doubts. Can anyone help me?
    ryan@personal loans recently posted..The Worst Financial Disasters in History


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