How to Manage Your Own 401

The 401k plan is a popular investment option and a big benefit that businesses can offer their employees. If you’re a newbie, this article will help you gain the confidence you need to effectively manage your own 401k.

Get Started

The first step is to make the decision to actually participate in your company’s 401k plan.

This is especially true when your company matches your 401k contributions.

The idea that there is a perfect time to start investing is a farce.

NOW is the perfect time to get started.

You don’t need to have a huge sum of money saved up. Start small and then rise steadily. You should also invest as much as you can.

Deciding not to invest in a 401k really borders on ignorance because you are literally not taking advantage of “free money”.

Consult With 401k Experts

A best way to get basic education is to meet with the consultants offered to you by the company hired by your employer to manage their 401k benefit plan.

Many people use their friends and family members for advice on getting started, but in most cases their knowledge is limited. Unfortunately, these people aren’t aware of the fact that the advice they are giving you is only based on their limited knowledge.

If you want to effectively manage your own 401k account, you should start by talking to the professionals.

Select Funds Wisely

Making investments is really quite easy. There should be a website made available to you showing the investment funds you have available. This website should also make it easy for you to change where to invest your funds.

The hard part is choosing the right investments. This is especially true for novice investors who usually don’t have enough financial experience to make those decisions.

The best way to learn is to use the resources available on the website and start with the default options. As you get more confident in navigating the website, understanding the terminology and comprehending the history of each investment, you will become confident enough to start making changes to your investment choices. background to make these decisions.

Your 401k website should have the following data available:

  • How each investment option has performed in the past
  • Default options that can be used if you don’t know where to start
  • Options to automatically recommend investments based upon risk level
  • The ability to invest based upon your age (and number of years til retirement)

Review Your 401k Investments, But Not Too Often

Many people make a habit of reviewing their 401k investments too often. However, this is likely to drive you crazy.

You have to remember that the best investment strategy is to focus on the long term results. In the short term, your investments will go up and they will go down. The goal is that over the long term, they will significantly go up. However if you panic the first time they go down and move your money, you won’t be able to take advantage of the gains when they go up.

The best strategy is to set your investment options and review them once a year to decide if you want to reallocate any of your money.

Don’t Be Swayed By Market Panic

If your investments see huge losses, you have to resist the option to panic.

In too many cases, investors jump ship because of a drop only to find out that the investment rebounded to a higher level.

Remember, this is a long term investment.

You will see ups and downs over the years. However, history has shown that the ups far outweigh the drops you will see.

How to Reallocate Your Investments

Most people make decisions on the reallocation of funds based upon their investing strategies and personal situations. Other investors go about making reallocation every other month.  As indicated above, that is not necessary and it will drive you crazy.  Once per year is ideal.

Investment reallocation can easily be done when you log into your account online. In most cases you’ll find a page where your current allocations are displayed and you can easily re-balance your portfolio in a few clicks.

Avoid Borrowing From Your 401k

The urge to borrow from your 401k may be strong but you should not do this. Doing so will expose you to a couple of negative situations.  You will lose out on the compound interest your money could be earning.  You will also be required to pay interest on the borrowed loan and if you happen to stop working for your employer, you’ll have to pay back the loan immediately.

Avoid Early Distribution

Another item that should be avoided is the urge to withdraw your 401k early. Although this is allowed if you meet certain hardship conditions, you will be subjected to considerable federal income taxes and penalties.

People who are younger than 59½ years are required to pay a 10% penalty. Prior to making such a move, you should consult with a tax professional to get a clear picture of how much the early withdrawl will cost you.

Base Your Strategy On Long Term Goals

Investing in a 401k should, as mentioned earlier, be done for the long haul. Your focus should be on growing funds that will be of use to you in 20, 30 or 40 years, not next year.

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