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Six Tips to Succeed With Your 401(k) Account

Traditional pension plans are disappearing. One of the best ways to prepare for retirement is to save as much as possible in your 401(k) plan. Here are a few tips to help maximize those savings:

  1. Employer’s Company Match. Take full advantage of your employer’s company match. For example, your company might contribute 50 cents for every dollar that you save in your 401(k) plan up to perhaps 6%. If necessary, increase your contributions (to 6% in our example) to take advantage of the maximum match offered by your employer. This is one of the best no-risk, instant returns available for your money.
  2. Too Much Company Stock. Be careful to not load up on too much company stock. Employers sometimes provide their 401(k) match in the form of company stock. If this is the case, shift the money into other investment options when permissible. Even if your company’s prospects look promising, a well-diversified portfolio is the smartest bet. Many experts advise investing no more than 10% of your 401(k) portfolio in company stock.
  3. Recent Performance. Resist the temptation to shift money to the mutual funds in your plan with the best recent performance. Strong, short-term performance does not guarantee continued success. Your goal is to design a diversified portfolio that will perform well in all market cycles. Consider your age and risk tolerance.
  4. Balance Risk. Be careful to balance risk in your portfolio. Many people invest too conservatively in their early and mid-career years. Stock funds can help provide growth. As you approach retirement, money market and bond funds can add stability.
  5. Review your 401(k) at least annually. Many people forget about their 401(k) after the initial set-up. Make sure your entire retirement portfolio reflects an appropriate allocation including stocks, bonds, and cash. Some employees may feel inadequate for the task of rebalancing their 401(k). Be careful with advice coming from a toll-free call center—verify credentials. A face-to-face meeting with an experienced professional might be in your best interest.
  6. Just Do It! Start as soon as possible. Contribute as much as you can afford. Don’t make early withdrawals. Educate yourself.