A well-funded 401(k) is an essential pillar of any retirement plan, offering substantial tax advantages and potentially contributing to a substantial nest egg over time. Because starting early is the key to successful retirement planning, taking advantage of your employer’s 401(k) plan can help ensure you have the comfortable retirement you’ve always dreamed of. Below are a few tips for harnessing the potential of your 401(k).

Managing Your 401(k)

1. Start as Soon as Possible

Over the course of several years, the power of compound interest can multiply the value of your savings several times over. To get the most out of your 401(k), start investing as soon as possible. Even if you're in your 40s, you still have time to build up a substantial retirement fund.

2. Maximize Employer Matching

Many employers will match your 401(k) contributions up to a certain dollar amount. These programs are essentially offering free money, so be sure to contribute the maximum every year if possible. Even if your employer only offers 50 cents for every dollar you invest in a 401(k), their contributions will increase your retirement savings by 50% in the first year alone.

3. Invest Heavily in Stocks

The stock market might be more volatile than bonds, but they offer substantially higher long-term returns. Young investors have more risk tolerance, so load your 401(k) with stocks, which can provide annual returns of 8% or more.

4. Rebalance Your Portfolio Every Year

Over time, some of the mutual funds in your 401(k) will increase in value, while others might decrease. This changes the percentage of your savings which are allocated to different mutual funds. Restoring the balance between funds you originally set once a year is a way of “buying low, selling high,” which maximizes long-term growth.

5. Don’t Invest Heavily in Company Stock

Many companies offer employees stock options, which can seem like an attractive investment opportunity. However, investing heavily in any one company opens you up to unnecessary risk, so don’t put more than 10% of your funds to company stock options.

Retirement planning can be confusing, especially with the wide array of investment options and conflicting advice available. For over 16 years, Nicole Gumm Groseclose Insurance Solutions has offered detailed advice and customized investment strategies for clients throughout the Allegheny County, VA area, and will take the time to help you achieve your dreams. For an overview of her services, visit her website now, and follow her on Twitter for more investment tips and advice. To schedule an appointment, give her a call at (540) 968-1569.