401k Investments
Investing in your company’s 401k plan is one of the best things you can do to get yourself ready for retirement. There are several benefits to taking action on this, the first of which is saving money on a tax deferred basis for your retirement. Second, even if your company matches 10% of your contributions, you have immediately earned 10% on your investment in your 401k plan.
Since most 401k plans allow you to set aside a certain percentage of your paycheck every month to contribute to your 401k plan, you are essentially Dollar Cost Averaging your investments. The result is that more shares of each mutual fund are purchased when prices are relatively low and less are purchased when prices are relatively high.
The biggest disadvantage to some 401k plans is the limited number of investment choices. This leaves you with limited ability to create a diversified portfolio that reduces your risk. Since you have a more limited set of available asset classes, it is prudent to take a more conservative approach to your 401k investments. Of course if you have a broad selection of asset class choices, you should still remember that Asset Allocation is more important in wealth formation than selecting the best manager in an asset class.
Given these facts we strongly suggest that you move your money out of your 401k plan when you leave your company, or when you retire, so that you have more control of how you get to invest your money. In the mean time, if you do have available all of the investment choices called for in our Model Investment Portfolios it may be time to rebalance your 401k investment portfolio. If, on the other hand, you are like most people here is our 401k Asset Allocation for creating a more balanced 401k Risk Profile.
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