If you have access to a 401(k) plan at work, it often pays to contribute funds. The reason? Many employers that sponsor 401(k)s also match worker contributions to some degree, so if you put in some money of your own, you might get free money in return.
But what if you’ve been saving in a 401(k) plan for a while and you aren’t happy with your results? Maybe your balance just isn’t what you hoped it would be at this point in life. In that case, you have options, and here are some changes worth looking at.
1. Get more aggressive
If you’re not seeing the type of growth you’d like in your 401(k), you may not be investing aggressively enough. Take a look at the funds you’ve chosen and make sure they’re stock-focused. That way, you can maximize growth in your retirement plan while you’re relatively young.
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2. Minimize your fees with index funds
The more fees you pay in the course of investing in your 401(k), the more it’ll impact your returns. If you’ve been losing a lot of money to fees, it pays to move your investments out of actively managed mutual funds and into index funds.
Index funds are passively managed, and their goal is to match the performance of the different benchmarks they’re tied to. Because of that, they tend to charge lower fees than their actively managed counterparts — even though they often perform just as well, if not better.
3. Put some money into an IRA
While it makes sense to put enough money into your 401(k) to claim your full employer match, you may want to consider branching out into an IRA. Doing so could make it much easier to invest for retirement the way you want to.
When you invest in a 401(k), you’re generally limited to funds only. While index funds are a solid bet for everyday investors, they also won’t let your portfolio outperform the broad market. IRAs, however, let you put your money into individual stocks. If that’s a strategy you’re comfortable employing, it could make you a lot wealthier over time.
Another benefit of saving in an IRA? Getting to open a Roth account. Not every 401(k) plan offers a Roth savings feature, but if you opt for an IRA, you can open a Roth, as long your income doesn’t bar you from making direct contributions. Even if it does, you can always fund a traditional IRA and then convert it to a Roth account after the fact.
Your retirement savings could end up being your primary source of income once your time in the labor force comes to an end, especially with Social Security cuts on the table. If you’re not satisfied with your 401(k), don’t resign yourself to high fees and lackluster performance. Instead, take steps to slash your fees and reallocate your assets. And if you decide to move some of your money outside of a 401(k), there’s absolutely nothing wrong with that, either.
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