401(k) plans can be quite confusing, even scary to some people. Most employers these days offer access to a 401(k) plan, many of which still match contributions. In most cases, the 401(k) plan options can cause an investor to lose his or her head. Which plan option to put your money in? How much do I invest? When do I change or rebalance my 401(k)? All these questions can cripple an investor, and cause some to not invest at all. One thing every investor has to remember is that the longer you have cash in an account, the longer that money has to grow.
All the previous questions are great questions to ask, however to deliberate on those questions over weeks, months, even years, can really hurt an investor in the long run. Nobody wants their money in the wrong investment. Many popular radio and television shows caution investors to invest in the right program. However, the right program changes over time. For a while, overseas investment funds were hot, now not so much. The great news is that most 401(k) plans allow the investor to change their investment strategies as often as they’d like, typically finalizing changes during the next deposit. So, get your money in, stay on top of it, and research along the way.
So why should you invest in a 401(k)? The free money. If an employer offers a 401(k) matching program, take advantage of it! Invest at least the portion that the company will match. By not investing an employer matched 401(k) plan, you’re leaving money on the table. If you can invest more, do it. Why? The money that is put into a 401(k) plan is pre-tax. This means that the government will figure your tax bracket based on your income AFTER the designated wages have been invested. This potentially means more money in your pocket.
A volatile market is very scary to invest in, any financial adviser will agree. However, because 401(k) plans invest in mutual funds, your money is better protected because the money is invested in multiple stocks that make up that mutual fund. Most mutual funds are well diversified. By investing in low cost mutual funds, and spreading the investment dollar across many funds, the cash that is put into the investment is safer (and tends to be less volatile) than investing in a single stock on the open market.
Investment plans are not to be taken lightly, however, by not acting at all an investor does themselves more of a dis-service than sitting on the sidelines. If you’re not investing today, get your money into a 401(k) plan.