401k: Where to Invest Your Money

If you are just setting up a 401k retirement savings plan or if you have had a plan for years, but are now actively preparing for retirement, you may have many questions. The common being “where should I invest my money?” Of course, the decision is yours to make and you should speak with a qualified financial advisor, but continue reading on for some tips to help you get started.

When it comes to choosing your 401k investments, there are a number of important questions you need to ask yourself. You need to know how much money you need for retirement, how much money you have, when you anticipate to retire, and how much of a risk you are willing to take.

Your age should play a significant role in determining your investments. When do you want to retire and how old are you? If you are in your early 20s or 30s, you have a lot of freedom. You won’t retire for at least 30 more years. For at least 10 one those years, you can stand to take a risk. You can gamble on the stock market. Now is the best time because the economy and stock market are in poor condition. Stocks are available for cheap. Research companies to examine and compare their long-term averages. Stock with high shares before the 2007 and 2008 years are likely good companies, they just fell victim to the poor economy and consumers limiting their spending.

As for why those young in age are able to take a gamble with stocks, it is because the market usually recuperates. As previously stated, it is in a poor state right now. Most financial experts state it will improve or start to improve in less than 5 years. You invest money in low-cost stocks and watch them rise as the economy improves. With that rising, you will experience gains in your retirement savings.

If you are on the other side of the fence and in your late 40s or 50s, you may be willing to take less risk. You plan to retire soon. If you have had a 401k plan for years and were invested in stocks, you likely lost money in 2008. No one wants to lose money, especially so close to retirement. If you lost money and can, hold out. Remember the economy should start to improve in less than five years. If you can wait that long, the stocks you invested in should rise. You may not make a profit, but at least you are able to recuperate the money you lost.

The risk you are willing to take should also play a role in determining your 401k investments. Even if you are young and in your 20s or 30s, risks may not be your thing. You do not want to lose money in the event the market takes another swing after improving. This is okay and normal. In that case, diversification is your best option. Opt for a collection of stocks and bonds. You are able to take some risks, while keeping one foot planted firmly on the ground. In the event the stock market takes another hit 20 years from now, you will not lose all of your retirement savings.

Finally, is important to consider the money you have and the money you need for retirement. Say you are 50 years old. You lost $100,000 due to poor stocks. Should you pull out now? Not necessarily, those stocks should start to improve before you reach the age of 60. Speak to a financial advisor. If they anticipate a market turnaround, keep your investments as is. Wait until you recuperate some of your money and switch to low-risk investments. If not, you will need to find another way to come up with that missing $100,000, plus any other money you need to financially survive your golden years.

401k Stocks: Using the Internet as a Research Tool

If you have a 401k plan, you invested in the stock market. In 2008, many Americans saw their investments suffer. Some individuals lost most of their retirement due to the poor stock market and troubling economy. There wasn’t much that investors could do, as the economy just hit a wall. It was trouble all around. With that said, there are some ways to protect your 401k investments, namely stocks. For starters, be sure to diversify. Don’t rely on one industry to retire, rely on them all. Next, use the internet as a research tool.

As great as it is to hear that the internet can be used as a research tool, you may want more information. Why? How? Please continue reading on to get your answers.

As previously stated, the economy took a hit in 2007. Many stocks dipped to dangerously low levels. If you read or watched the news, you were slightly aware this was coming. Many signs were shown. In fact, you may have had the opportunity to switch a few of your high-risk stocks to safer bets or bonds before the collapse started. If not, you suffered a loss. There are steps you can take to prevent that from happening again. For now, try to ride out the storm. Then, be sure to listen to financial news. Remember there were small signs that the economy was in trouble, long before we realized it was.

The internet can also be used to research individual stocks and companies. If investing in your 401k for the first time, use it as a valuable research tool. In fact, combine the internet with a financial expert. That expert can give you ideas on companies with profitable stocks or stocks in which you are likely to profit from. Now, don’t just rely on the advice of a financial expert alone. They have been wrong before. Take the information your financial expert gives you and return home. Use the internet to your advantage. Research the long-term history of stocks and their projected outlook.

You can and should also use the internet to monitor the stocks you have. Most companies show signs of trouble before their stocks dip or the company goes under. This is and was most apparent with Circuit City. This well-known electronics retailer once competed with Best Buy as the best electronics store in the United States. On January 10, 2009, Circuit City was told they had one week to find a buyer. If that isn’t done, their doors will close. At one time, around January 2007, Circuit City’s stocks were at about $20 a share. Now, they are lucky to be above .25 cents.

Those individuals invested in Circuit City stock are likely to lose money, especially if the company does go under. However, those who turned to the internet were well aware of a problem. Many were able to pullout before the company’s stock started a downward spiral. There were internet reports online that Best Buy was becoming the top electronic retailer. This automatically meant Circuit City was slipping. Next, it was easy to find postings from former employers terminated from the company. You may have let this slide as rumors from disgruntled employees, but the total was in the thousands. Thousands of well-paid and experienced workers were laid off and replaced with inexperienced, low-paid workers. Why the drastic step? They were losing money and needed to cut expenses.

Circuit City is just one example. Regardless of the company or industry, whether it be retail, food, auto, financial, or technology, it is easy to find information online. You can use that information to influence your 401k investments.

401k Stocks: Should You Pull Out Because of the Bad Economy

If your 401k is invested in the stock market, you saw a loss in 2009. You may have sat by helplessly as your retirement savings dwindled. Your first instinct and it may still be a consideration is to get out now. You can start to pull out of your stock funds and invest in safer bets, like bonds and money markets, but is it the right idea? It all depends, but on what?

Your diversification. Most individuals mistakenly believe that 401k diversification means investing in a collection of stocks and bonds. Yes, it does, but there is more. With stocks, you want to examine the industry. Never invest in just one, like the auto industry. Diversify your stocks so that if one industry suffers, you still have the others to fall back on.

When diversifying, consider consumer spending habits. The entire stock market
took a dive in 2009 due to the poor economy. Consumers limited their spending habits. When they did spend, they opted for discount retailers or affordable restaurants. Right now, the auto industry is suffering, as people are buying less cars. With that said, people still need to eat. For that reason, grocery stores, affordable restaurants, and affordable department stores are still holding steady.

If you are invested in stock that may not recover as quickly as the rest, like with the auto industry, consider pulling out of those stocks, but don’t remove all your stock investments. Switch to a money market account or buy different stock. Remember though that the economy will start to improve, it will just take time. In fact, that leads the next factor.

Your age. How old are you and when do you want to retire? If soon, you may be unable to wait until the economy improves and stock prices rise. In that case, take the stock that you lost the smallest amount of money on. Protect yourself from losing more. Even if you intend to retire in 3 years, give some stock a chance to improve. Do this with your biggest losers.

On the other hand, if you are young and don’t intend to retire for 15 years or more, you can and should wait it out. The stock market and the economy will improve. Financial experts keep emphasizing this point. You are able to withstand the ups and downs. If you lost money, don’t pull out now. The only exception would be companies or industries in which you don’t expect to recover right away. Do you hear rumblings that a retail store you invest in may close? It may be nothing more than a rumor, but consider your loss if the company does collapse.

The amount of money you have lost. As previously stated, many 401k account holders lost money in 2009 due to the poor economy and stock market. If you are nearing retirement, you may have lost $150,000 or more. This is cause for concern. Since the market is expected to turn around soon and consumer spending will improve, try to wait it out. If you cannot, start making the switch. With that said, focus on still steady stocks. Even if you only have two years until retirement, give the bigger losers a chance to improve. In this aspect, you will recuperate a small percentage of your loss, but it is better than nothing.

In short, it is a good idea to pull away from 401k stocks in some cases. In most instances, it is best to weather the storm. If you are unsure what to do, speak with a financial advisor.

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401k Plans and Stocks: The Importance of Diversification

If you have a 401k plan, chances are your money is invested in stocks. Unless nearing retirement, investment experts recommended dabbling in the stock market. For those who are able to wait and survive the market’s ups and downs, the stock market is a great way to invest, save, and make money for retirement.

If you just created a 401k account or if you are now realizing the importance of getting the most from your 401k, you may wonder how to increase profits and reduce losses. When the stock market is involved, there is one word you need to know; diversification. Diversification is key to maximizing your savings and reducing losses.

Most importantly, never invest too much money in your company stock. For most, company stock seems like the best choice. You work for the company, so why not support it by being a stockholder. This is a good theory, but it can backfire. What if your company collapses and goes under? You not only lose money from your stock, but you lose your job too. Don’t suffer a double hit.

Always review your employer contributions. Many employers contribute to their employees’ 401k plans. This usually involves matching a percentage of employee contributions. Some employer contributions come with restrictions. For example, the money may only be used for company stock. Your hands are tied in this aspect, but use the rules and restrictions to diversify your own contributions. For instance, if your employer contributions buy you stock in your company, use your own money to invest in others.

Always think outside of the box. For example, in 2007 and 2008, the auto industry took a significant hit. Automakers were left to layoff workers, close plants, and ask for government assistance. There were signs these companies were starting to go under. If you had stock in the automakers, you may have had an opportunity to get out before the stocks dipped too low. With that said, it wasn’t just the auto makers that saw a decrease in stock, most wholesale auto parts suppliers, auto stores, and car dealerships saw a decrease too. This is because they are all directly related to each other. When diversifying your stocks, always consider this relation. Never invest only in stock related to the auto industry and so forth. Diversify your portfolio.

One of the best ways to diversify is to consider the economy. It always has its ups and downs. For example, when the economy is good, consumers spend more money. When it is bad, they spend less. This is evident with restaurants. Domino’s Pizza shares were around $32.25 in April 2007. In January 2009, they are now about $6.13 a share. Now, the economy is bad. Consumers are watching and limiting their purchases. For years, McDonald’s shares were consistently below $45 a share. In 2007, they started to increase. In January 2009, shares were worth about $60.07 each. If you invest in retail stores or restaurants, be sure to have a mixture of high end and discount companies. That way you are protected if the market changes direction.

The above mentioned tips focused on diversification for 401k stocks. It is also a good idea to diversify in other aspects. Don’t invest all your money in the stock market. Every so often, the market experiences twists and turns. Don’t get caught in the rough patch when ready to retire. As you near retirement, start making the switch to bonds. They do have a smaller payoff, but the risks are much less. If in your early 20s or 30s, diversify and create your portfolio with a mixture of stocks and bonds.

401K Investments: Wait or Make the Change?

A 401(k) plan allows United States workers to save for retirement. The greatest benefit of these retirement plans is deferred income tax. Until the money is withdrawn, it is not considered taxable income.

Since 401(k) plans are usually composed of money market investments, stocks, and bonds, there is some risk involved. In 2008, the stock market took a dive. Many hardworking Americans saw their retirement savings decreases, some at an alarming rate. If you were one of those individuals, you may wonder what to do. Should you change your investment strategy? Should you move your stocks around? Honestly, it all depends who you ask.

Turn on the television or the radio and listen to an “expert,” in the field of money management and investing. Some experts claim you should move your investments around while others say the stock market has nowhere to go but up. That will however, take time. By pulling out of your investments or making the switch from stocks to money market accounts or bonds, you lose money. Stocks are nearing all-time lows. You paid more than their current value. Pullout now and you lose money.

For most individuals, it is best to ride out the storm. As previously stated, many financial experts expect the economy and the stock market to bounce back. This has happened in the past. It may take five years before it is fully back on its feet, but it will happen. If you are in your 20s, 30s, or 40s, you can weather this storm. The stock market will improve before you need to retire. The stocks you invested in should increase. Depending on when you need to retire, you may not make a lot of money, but at least you will recuperate your current losses.

Although it is a good idea to wait and ride out the poor economy, this is not advised in some instances. If you are in your late or early 50s, did you originally opt for stocks and then forgot to make the switch? You may retire in 5 years or less. As previously stated, the economy may bounce back in five years, but there are no guarantees. It may take longer. Don’t pull out of all your stocks, but start making the switch to low risk investments, like bonds or money market accounts. Of course, you don’t want to take a loss, but now it is important to focus on retirement and the money you do have. Save it and protect it.

Many individuals are concerned with their retirement savings and rightfully so. Although it is best to ignore the financial news, especially if you intend to wait it out, don’t ignore obvious problems. This is important if you are invested in the retail industry, restaurant industry, and auto industry. These companies are suffering right now. Some may not last long enough to survive the upturn. It is hard to gauge internet postings online. Some are nothing more than rumors. With that said, always research the stocks you invested in. Do you hear rumblings online that the company may go under? If that company collapses and you are invested in their stock, you lose your money. You won’t have the chance to recuperate it. Consider getting out while you still can.

In short, when it comes to riding out the stock market, your 401k choice should depend on a number of factors. They are your age, the risks you want to take, and the long-term strength of the companies you invested in.

401k Early Withdrawals: Are They Worth it?

Did your employer offer you early retirement? Are you changing jobs? If so, you may wonder about your 401k. In the event of a job switch, you can rollover your 401k to your employer’s new plan, pay fees to keep it the same, rollover the account into an IRA, or accept a cash out. In terms of early retirement, if you don’t have the needed financial resources to makeup for the extra years of retirement, a 401k cash out is one of your few options, aside from getting another job.

A new job and early retirement are just a couple instances in which an individual may ask for an early 401k withdrawal. At the time, it seems like a good idea. After all, who is going to turn money away? Not many. With that said, it is important to look at the big picture. When taking an early withdrawal from your 401k, it is not as simple as taking money from your bank account. You are hit with many rough patches and consequences. What are they?

Taxes and fees. 401k plans are designed for retirement. For that reason, you should wait until you are at least 59 ½ years old to collect your savings. Even in the event of early retirement, you are required to pay a fee. That is a 10% fee. Next, there is the tax factor. Your employee contributions throughout the years were tax sheltered. You did not pay tax on that income. Yes, you have known all along that you will pay taxes on this money, but are you ready to pay them now? You must be if you intend to take an early withdrawal. Depending on the size of your 401k, this can be a lot of money. Add that in with your 10% early withdrawal fee and you may not have much left.

As previously stated, it depends on the situation. If just switching jobs and in your early 20s or 30s, consider the alternatives. These include paying management fees to keep your 401k plan with your former employer, rolling over to your new employer’s program, and rolling over to an IRA. For most, even the maintence fees are less than the early withdrawal penalty. As for early retirement, what are your options? If you did not intend to retire for 10 more years, try to find another job or offer to take a pay cut. You are still provided with employment, can continue to contribute to your 401k, and earn livable income until you are prepared to retire. If you prepared to retire in 2 or 3 years, look at your savings. Is there enough to get you buy until you get access your 401k without the penalties?

Finally, it is important to look at the total this will cost you. If you are in your late 20s and switching jobs, you may have only acquired $10,000 or so in your 401k. You are young in life and would like to purchase a new car or a new home. You think this money could come in handy and it probably would, but how much of that money are you going to see? Continue reading on for an example, using the above mentioned $10,000.

As previously stated, there is a 10% early withdrawal fee. Right there is $1,000. Then, the income is taxable. You can use the internet or call the Internal Revenue Service (IRS). Find out what your tax rate is. On average, most Americans pay around 20%. You can expect this to be about $2,000. Not only do you need to pay federal taxes on this income, but state taxes too. Determine your state income tax. They vary greatly. Even if it is only 5%, that is $500.

By using the above mentioned formula, you are left with $6,950. You paid $3,500 in penalties and taxes. Yes, this is still money that you could use, but imagine if you let it sit in your 401k and continue to collect money. With retirement savings, it is important to think long-term, even if you are only 20 years old.

Did your employer offer you early retirement? Are you changing jobs? If so, you may wonder about your 401k. In the event of a job switch, you can rollover your 401k to your employer’s new plan, pay fees to keep it the same, rollover the account into an IRA, or accept a cash out. In terms of early retirement, if you don’t have the needed financial resources to makeup for the extra years of retirement, a 401k cash out is one of your few options, aside from getting another job.

The only individuals who should consider an early withdrawal are those considering early retirement, but there are still risks. If 25 and switching jobs, don’t cash out. Wait until you are settled in your new job and apply for a 401k loan. You are doubled taxed, but not charged large fees.

401k: Don’t Put All Your Eggs in One Basket

A 401k is a retirement savings plan.  It is funded by employee payroll deductions and, occasionally, employer matching contributions.  The money is put in a fund and invested.  Some employees opt for low-risk investments, such as short-term bonds.  On the other hand, others play the gambling game and dabble in the stock market.  Which should you choose?  Both.

On December 11, 2008, it was learned that well-known stock market expert and financial expert Bernard Madoff wasn’t an expert investor after all.  What was he?  The mastermind and operator of a giant scheme.  Individuals and companies invested money into his firm.  They did so believing they were making a wise investment.  Most are still reeling from what came next.  It was all a scam.  He was using new money from new “investors,” to payoff the old.  Since those who drew money off old investments actually got paid, there were little signs this was nothing more than a scam.

Those of us not affected by the Bernard Madoff swindle often just wonder how this could happen and then think about the people who lost money.  Some had their entire retirement savings wiped clean.  Those who wanted to retire in 5 years, now don’t have enough money.  Worse yet, those who are already retired and continue to draw money have no more money left.  Yes, it is normal to show compassion for those impacted and wonder how this could happen, but it is best to look at the situation from a lesson learned.  Those who had their entire retirement savings wiped out made a costly mistake.  That mistake was not investing in a scammer, as even the “experts,” were none the wiser.  The mistake was putting all their eggs in one basket.

Not everyone lost their entire retirement savings due to Bernard Madoff.  Some just lost a percentage.  Any money lost is devastating, but at least those who spread out their investments have some money to fall back on.  This is the lesson.  Never risk everything on one endeavor.  As stated above, you should opt for a combination of risky stocks and low-risk bonds.  If one venture suffers, you still have the other to fall back on.

Returning back to stocks and the Bernard Madoff scheme, do more than just diversify your stocks.  That is one note many victims made.  They invested money through this individual, but they diversified.  One couple interviewed on television believed they had stocks in Hewlett-Packard (HPQ), McDonald’s Corp (MCD), and many others.  Yes, the stocks were diversified, but they only invested through Madoff.  This is another example of not putting your eggs in one basket.  You may not have control over which brokerage and money management firms your 401k goes to, but keep this in mind for personal use.  Do not rely on one person or company to carry you through retirement.

Another lessen learned is the importance of good old savings.  You should have a 401k plan.  If your employer offers a plan, you are making a mistake not to take part.  In fact, that mistake can cost you money.  Many employers match contributions made by employees.  This translates into free retirement money.  Do not pass this up.  With that said, stash away money when you can.  If you are debt-free create a plan.  Plan to deposit $100 in your savings about for every $1,000 or so you contribute to your 401k.  It will add up over time.  Do not use this money unless in dire circumstances.  This can also help to carry you through retirement, especially in the event your investments sour.

It is a terrible phrase to use, but out of tragedy their always comes a lesson.  Thousands of Americans have lost their hard-earned retirement savings.  Those who put their eggs in one basket are reeling from the effects and will be for the rest of their lives.  If you weren’t affected by the Bernard Madoff scheme, take this unfortunate situation and use it as a lessen.  Do not rely on one individual, one company, or one investment, no matter how solid they appear.