If you have a job that offers a 401k plan, then there are some things that you should know in order to get the most out of this highly valuable benefit. The first thing you should know is that a 401k is a collection of mutual funds, and they are run by investment companies like Prudential, Fidelity, and other places like that. This means that they can be bought and sold like stocks, right over the phone without any “trading fees” added in by the broker. Before getting into all of that, there are a couple of things that you should be aware of in order to get the maximum return on your investment.
Contributing the maximum amount that your employer will pretty much doubles the amount of your investment for free, there is usually a monthly limit to the amount though. If you are not hitting the maximum “employer contribution amount” every month, then you are not taking full advantage of the 401k benefit. If you look at the prospectus for your 401k plan, it should give you a good average of how much return will come in on your investments by the year. Even though an annual report is good to look at, leaving it to sit and not keeping track of your money is not a very smart move. Keeping close track of your 401k account will also show you where you can get more out of it.
Are you ready for the good part?
401k plans work like the stock market and it is important for people who do not have a lot of time left to contribute to their 401k plan to know how to get the maximum performance out of it. Knowing how to trade your shares in the different mutual funds offered in your 401k plan will get you a big enough return that you can measure daily. There is usually a phone number that you can call that will tell you the values of the different funds, and let you trade between funds with the push of a button. At first, the main idea is to watch each of them and their histories. When one starts dropping below the price that it usually sits at, you sell your highest priced shares and invest in the lower priced one. The next day when it comes back up to the normal rate, you have made a nice little profit, and you will probably see that the higher priced share that you sold the day before has dropped in value, making you lose money. The key here is to buy the low priced shares and sell higher priced ones throughout the different mutual funds that your 401k plan oversees. You will see growth from this almost every day, and the more shares you can buy the more money you will make. Most people might say looking into it annually is good enough, but that is really not a good practice.
The techniques mentioned earlier are not hard to understand, nor do they take a long time to do. You should start off by first calling the number to manage your 401k plan every day for about a week. Have a pen and paper handy, and write down the values of each of your plan’s funds, and what their names are. Watch them every day for about a week, and you will see that some are more volatile than others. The volatile ones might fluctuate as much as a dollar a day, either way. Anyways, what you do is find the safest mutual fund that does not fluctuate, and use that as a “savings account”. These are usually the money market funds that barely keep up with the rate of inflation. Anyways, what you do is pull from that one to buy the other ones when they fluctuate down below their usual price. Then when they fluctuate back up, then you sell them and trade right into the next one that went down. It is a good practice to transfer about ten to thirty percent of the “profit amount” of this trade back into your “savings fund” for safe keeping. If you remember to buy low and sell high, then you will make a lot of money when those values get to fluctuating. If you use this technique properly, you can multiply the value of your 401k account very quickly. Remember, the real money is in the fluctuations. The values can also fluctuate throughout the day, so the closer you watch it the more you stand to make.
No discussion about a 401k plan is complete without talking about the tax benefits that come from contributing to it. The money you put into the plan is not taxable until you pull it out. This makes it a safe and effective way to invest in your retirement without having to give half of it up to Uncle Sam. In a nutshell, contribute the maximum amount to your 401k and watch it closely. So while you are sitting down for lunch at work, break out the cell phone and call your 401k management system and start trading!