Description: The following article primarily wants to express the general idea on 401k. The author is willing to show us some incredible 401k tips, remind people to avoid mistakes and some problems, mention some mistakes for people to make when having the 401k and some benefits for having 401k.
Good retirement advice is hard to get, because everyone is trying to get rich off of it, I am giving it away for free, so when you’re studying it, the first thing you want to do is to set up your form, you want to do it even before you pay off your high interest credit card.
Then you want to set your contribution limit to the max the employer, match max and take full advantage of that free money and then you want to pick your investments and I will look at Google Finance to get an expert opinion on the distribution.
I should be at for my expected retirement date and you know relate that to the basket of investments that are available to you out of your players form, you could be flexible there as well.
Then you want to rebalance zero to two times a year, when all that’s going for you with your long term view on the situation, you don’t have to watch your form, there’s no reason to check the balance of it, with the daily market swings set it and forget it.
The biggest problem of 401ks is that most people with 401ks would have the first job, because they’re from your employer and for most younger employees, this is the first time they’ve started making money, this is the first time they’ve had have any investment experience, it’s the first time I’ve had any extra money, so a lot of them tend to over invest in their 401k.
This is a terrible mistake, there are a lot of benefits to have a 401k and it is a safe place to keep your money, but you have a lot of hurdles of life ahead of you, you should use that extra money to create an outside investment account for investments outside of your 401k.
But by no means should you not invest in your 401k, it should be your primary objective, it is more important for a young investor to invest in their 401k, then to pay off their high-yield credit card debt which normally you would think would be your primary objective, you’re better in the long run.
If your primary objective is to contribute to your 401k and then pay off your high-yield credit card debt, so how much do you contribute? The answer is very easy, you max out your company, match some companies, the range is usually about 1 to 15%, you want to match that to the max out your match and not a penny.
If the match is very low or if there is no match, I went do anything more than 5%, but a 401k investment company will tell you 10%, so if you’re getting a 5% match and you contribute 5%, you’re getting their recommended amount which is 10%.
The reason why you don’t want to over invest your 401k is that you have a lot of large life expect purchases ahead of you, a house, a car, a diamond ring, you need to be able to finish to fix your car and buy a new car without having to go in your 401k.
It’s not an investment accounts retirement accounts, you want to have you want to have two accounts that a lot of people think they can over contribute to there, a lot of young people think they can ever contribute to their former kit, because they’re going to be rich, that’s very good.
But you probably want to be able to buy a Porsche when you’re rich and not when you’re retired, so you want to have your money outside of your retirement account, so you can access it to buy luxury boats and cars and houses when you’re rich.
If you think about it, when you retire, you’re going to be old, you’re going to live in the house you already bought, you’re going to drive the car you already own, you’re winning the lottery and you’re going to buy the yacht, you’re going to be 67 years old, you’re going to have very different opinions about life, you can have very different viewpoints, you’re going to be very comfortable in your ablutions every day.
The things that you do in your retirement will be nice and stable and routine, you’ll love it and it will be very sweet and amazing, but there’s going to be no rock star, lottery ticket purchases, there are a lot of those stories of people buying RVs or retreating to continents to retire.
There are a lot of those and tragically the first reason for expats to repatriate to the United States is homesickness, it’s not going to be a big party, it’s going to be your security, if you’re good, you’ll never even touch it, you’ll live off the interest and then you’ll pass the egg on to your heirs in your estate under contributing anything less than the matches.
That’s free money, take the goal, here is security, you want to live off the interest until you die, let the estate cut it up, is that a reason to over contribute? No. So you got your contribution number of set to your company match.
It’s time to choose your investments the trip to retiring, as you approach your retirement date, you will then stop contributing, so if the market happens to be down, you won’t be able to recover, so you want to taper yourself out of investments that are more volatile and go into more defensive oriented stuff.
As you approach retirement, the trick is that if you do that from the beginning, you’ll miss out on a lot of returns that the more volatile stuff generates, so you want to start aggressive and then taper into defensive, they’ve created a solution for people who don’t want to think about it called the target date fund.
It picks several aggressive investments, as it gets closer to the targeted date, the retirement date, it starts getting more and more conservative, but in the day that the person retires that year, that target date, it’s a hundred percent in bonds about as defensive as you can get.
So it spent all of those years tapering out and into bonds, so I like to think that’s the expert view on it, there’s a very simple way, so if you invest in this target date fund, you’re getting all exposure to all those investments.
A professional is tapering you out, but you’re also paying the fees for the target date fund, then you’re paying each of the individual fund, so you’re paying double fees, but I like the science, I like having an expert opinion on the situation.
So what I like to do is to go to Google Finance and I look at the investment distribution of the fund of funds, there is your building block professional example of what to do of how to distribute your funds appropriately for your age in your expected retirement date.
So the first thing you want to do is to determine your retirement date, it doesn’t matter if you’ll have enough money, if you’re still working at the same place or whatever all of that doesn’t matter, find out what year it is when you turn to 70 and bracket yourself into that target date fund.
I want to be in different sectors that react differently, so I can weigh one against the other, try and stay very light and the specialty stuff and go heavy in the index funds, the secret to creeps you generating alpha on this, on these beta style of investments is to rebalance.
I definitely don’t want to see rebalancing more, I don’t rebalance more than never, more than twice a year, I would say try and do it annually, so I try and rebounce, I rebalance my stuff once every other year.
What rebalancing does in a long time term is to generate alpha, so you’re looking at it, what you’re selling in your distributing it to everything else, as you know from our dollar cost averaging some things go up, other things go down.
Next year, it all changes, so by rebalancing, you’re taking some of the profit off and redistributing it, when the different markets lift up again, you’ve doubled your exposure in those areas, you’ve written that hot, you’ve written that push up and then you skim off the top again and redo it again.
So over the long run, you’re boosting or your performance over the long run, I would never read and sold anything, that’s down, that’s a way, you’re draining capital from your account, because you’re doing the opposite effect instead of boosting.
You’re eroding your capital by selling stuff, so write out the stuff, that’s down, this is very long, you have to think about it in a very long term, so write out anything, let’s sit down and try and sell the stuff, that’s hot.
A lot of people will look at the returns and they’ll see what’s hot and that’s where they’ll steer all their new capital, that’s bad way to do it, you’re going to know by a con, you’re looking so far into the future.
It’s hard to grasp the actual performance, so if you see the way different investments change over time, you’ll know that it’s hard to make a mistake, you want to get into different things to get different sign curves, going different levers, going up and down.
You could pay attention to the fees a little bit, the specialty stuff usually has much higher fees and that adds up in the long run to quite a considerable number at the end and the index stuff has a nascent fees almost non-existent fee.
So if you want to get all index funds or whatever your each employer has different baskets to choose from definitely want to jump on some index funds and the more variety that are the better.