Dos and Don’ts of 401k Investing

As you know, a 401k is a retirement savings plan. If you are nearing retirement, you are well familiar with this plan. However, if you are in your 20s or haven’t given retirement much thought until now, you may be curious about 401k investing. What should or shouldn’t you do?

DO have a 401k. If you are not participating in your employer’s 401k retirement savings program, start now. You are never too young to save for retirement. In fact, the earlier you start, the more money you should have in the end. Speak to a company representative to discuss the 401k program and your options.

DON’T make the mistake of believing that now is the time to stay away from the stock market. In fact, now is the perfect time to invest. The stock market is at a low. You can buy stocks for cheap. Most financial experts state the market will turn around and bounce back, as it always does. What does this mean for you? A profit.

DO speak to a financial advisor. If you are just setting up your 401k, you should have many questions. If you only briefly catch the market report on the news, you may be clueless when it comes to stocks. Which type of stocks should you invest in? Which companies perform the best? A financial advisor can help you get answers to these questions. If setting up your 401k for the first time, your company may provide a free or discounted consultation with a financial advisor.

DON’T rely solely on the advice of a finical advisor. Yes, these are experts in the field. Money managers do know how to invest, but they all have been wrong. This was seen with the Bernard Madoff scandal. Billions of dollars were lost. Hardworking Americans believed he was handling their money as investments, but really, he was just using it to run a scam. Before the scandal broke, Madoff was well-known and recommended.

DO your own research first. Luckily, the internet makes it easy for novice individuals to learn about the stock market. Perform a standard internet search to get company names and stock symbols. Research stocks performance over the past years. Look for company reviews and projections. Find stocks you believe you can profit from. Take risks if you want, but also opt for a few “safe bets.”

DON’T forget about your 401k. After setting up your 401k account, time will pass. Your contributions are automatically deducted from your paycheck. It is very easy to forget about your 401k. Do not. You want to monitor your account. You should get quarterly statements in the mail. Closely examine them. See where you are making money and losing money.

DO assess the situation if you are losing money. Right now, in 2009, most 401k account holders lost or are losing money. This is due to the poor economy and stock market. Financial experts advise against pulling out now. As it always does, the stock market will bounce back.

DON’T ignore obvious problems. Yes, the market should start to improve soon and most companies and their stocks will bounce back, but some may be unable to survive the wait and you may lose too much. Use the internet to research the companies you invested in. Look for any warning signs, such as poor forecasted outlooks, a large number of employees who are complaining about layoffs or reduced hours, and so forth.

DO diversify your 401k. If you are young and don’t plan to retire for 20 or 30 years, you have the option to take risks. Invest in high risk stocks that are profitable if they succeed. You have time to recuperate if they don’t. Regardless, diversify, diversify, and do it again. Opt for a collection of stocks and bonds. For each, don’t rely on one company or investment to pull you through. Diversification prevents you from taking large losses. If one stock plummets, you have others to fall back on.

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