Many people thinking about retirement often rely on their social security and 401k. Of course, it is important to make smart decisions with the 401k, otherwise it could cost you everything. Here is why diversifying is better when it comes to your 401K!
What Is the 401k?
A 401k is a retirement savings plan, which is funded by taking a little off your wage each time you are paid. Many times your employer will also match your contributions up to a certain percentage.
The money obtained from your wage and employer is placed in a fund, upon which it is invested. Employees can choose how to invest their money; this includes low-risk investments and the stock market.
Why Should I Choose All Investment Types?
There is no point in sticking to one type of investment; for example the low-risk investment or the stock market. Instead, it is better to use both. Because sometimes, an investment can go horribly wrong.
A good example of how you could lose everything can be found with so-called financial expert Bernard Madoff. Most people believed he was a genius investor, while in fact he was running a scheme where he would pay out old investors with money obtained from new investors. Naturally, things came crashing down and many people lost their retirement.
How Should I Invest in the Stock Market?
When it comes to investing in the stock market, never go through one person; this is a lesson many investors learned after the Bernard Madoff scandal. Your investment agent may tell you he has your money invested in successful companies, but he could just as well be doing something else with it.
The moral of the story is this: never put all your eggs in one basket. Work with more than one investment agent if you rather not choose the stocks yourself. Make sure you have plenty of low-risk investments as well; this is the only way to secure your retirement fund and avoid losing it all.
What Else Can I Do to Ensure a Good Financial Situation Upon Retirement?
Of course, investing is not the only thing you could do to safeguard your financial future. One other thing that is vital to your financial security it good old-fashioned saving.
Most employers in the United States offer their employees a 401k plan. Surprisingly not all employees choose to opt in on the plan. This would be a mistake though, because such a 401k plan translates into free retirement money, since your employer pays a part of your 401k! If you save for your retirement yourself, then you don’t have that second party adding to your retirement.
When saving for your retirement, you should never withdraw any money from your 401k. While it may seem tempting if you are facing some big expenses, you must remember that the 401k is your financial future. Therefore, any money taking out of that 401k you cannot use!
While there is much to learn about the 401k and how to safeguard your financial future, most of it comes down to common sense. Simply invest and save sensibly, and your future financial situation will be a little more secure.
Related: What is a 401K Loan?
Related: What is a Roth 401K?