401k retirement plans are the easiest way for regular people to get rich. Why? First, you are putting money in them before you even see it. If you don’t see it, you wont miss it, or more importantly spend it. Next, since you are putting the money in them pre-tax, it is like the IRS is giving you money to invest. So it’s a choice of putting a $100 into your 401k plan, or maybe having $75 to spend (after the IRS took their share). But it’s not just the $100. Many companies offer matching. For instance, the company I work for, matches half up to 6%. So if I put in $100 of my own money, they match with another $50. So I would have $150 in my 401k retirement plan, versus having $75 to spend. I just doubled my money!
How much should you put in? As much as you can afford to. After you get used to not seeing the money, you won’t miss it. If you get a raise, then increase your contributions! Try to max it out! The earliest contributions you make are the most important. A $1000 invested in a 401k retirement plan at 18 years old will likely increase to a much larger amount than $10000 invested much later when you are say 40 years old. Invest as much as you can.
Now as far as best investments. The first thing I would recommed is not put too much into your own company’s stock! But you may say that you work for XYZ corp, and they are making money hand over fist! That’s exactly what the former employees of Enron said before they lost all of their money. You job is already your main source of income. Thats a lot of eggs in the basket already. Why put all of the rest of your eggs in the same basket as well? Put no more than 10% of your company’s stock in your 401k! I used to have 100%! I leanred the hard way. Today I have none of my company’s stock in my 401k (except what is part of the S&P 500 index fund).
Different companies have different 401k plans. Some are better than others. My 401k plan offers over a dozen funds going from extremely conservative, to fairly aggressive. My wife’s 401k plan offer a single fund that is middle of the road. My own 401k plan fund choices are aggressive. I started with a S&P 500 index fund. Then I looked at funds that did as well or better than the S&P 500 index fund. I came up with four funds. The S&P 500 index fund, a international growth fund, an S&P mid-cap stock fund, and another fund named Royce Low-Price Stock Fund that had been doing very well. I used the tools Yahoo Finance to chart out the funds in relation to each other. If over various periods of time the funds did better than the S&P 500 index fund, it was in.
So now I have my four funds. I started off with 25% of my balance in each of the funds. Then 25% of my contributions go to each of the funds. Of the mutual funds, the S&P 500 index fund is lagging as the other funds charge ahead at different speeds.
The balance of my 401k retirement plan is currently over a quarter of a million dollars. I am 42, and have been contributing to it for almost 15 years. I made some early mistakes, such as borrowing from my 401k, and not putting more in. But if I had known what I know now, and done the above, I would probably have well over half a million dollars now. Live and learn!
Anyway, thats what I have to say about 41k retirement plans and best investments.