Why Your 401K Is Important
Why Your 401K is Important
Do you have a 401k plan? If not, does your employer sponsor this type of program? If so, you should enroll and immediately. Why the rush? Continue reading on to find out.
If you weren’t aware, a 401k is an employer sponsored retirement savings program. Over time, you contribute money. Your money is invested. You can choose from a wide range of investments, including money market funds, stock funds, bond funds, or a collection of all three. This money is accessible before retirement with an early cash out or loan. As nice as it sounds to dip into this money, there are consequences, such as repayment, tax penalties, and fees. For that reason, those who contribute to a 401k plan are encouraged to leave their investments as is and collect at the age of 60.
As nice as it is to know what a 401k plan is, you may wonder again about the rush. Why is now the best time to get started? For starters, there are employer contributions. Most employer sponsored 401k programs have a matching program. This means that the employer contributes to the retirement savings plan too. Depending on your company’s preference, the contribution amount will vary depending on position, hours worked, and time with the company. Your match can be as small as 25% or more than 100%.
As for why employer contributions should cause you to rush, consider it free money. By adding a few dollars to your retirement account, your employer contributes too. This is free money. Even if you start out investing only $250 a month, that money will grow overtime with employer contributions. Consider it free money. If invested in the right places, it is not only free money, but money you can profit from.
Another reason for the rush is the current state of the economy. It is in bad shape and the stock market is suffering too. Stocks are nearing all-time lows. Turn on the news and you are likely to hear a report about retirees losing money. If this economy caused current and soon-to-be retirees to lose money, why do you want to invest now? Because of low-cost stock. Since stocks are at lows, you can buy them for cheap. The good news is that the economy is expected to turn around. Those low stock prices will eventually rise. This is where you able to make a profit.
If you don’t have a 401k plan, it is important to do more than just buy stock. It may continue to get worse before the economy improves. Not all companies will survive the wait. Research all companies and stock history before investing. Look at the long-term history. A stock that took a dip in 2007 and 2008, but was steady before, is just a victim of the economy. When it improves, so will shares. Be cautious of stocks with long-term lows. If stock shares remained consistent for 5 years, do not expect much change, even as the economy improves.
Finally, it is important to diversify. Not only diversify your stocks, but your investments as a whole. Opt for a collection of stocks and bonds. If you make a profit with the stock market, when the economy improves, get out when the getting is good, especially if you intend to retire in 5 or 10 years. Take the money you made and switch over to low-risk investments, like money markets and bonds. If you are concerned with risk, wait until you get some profit and then make the switch. However, don’t get caught in the never ending cycle of good and bad economies.
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