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 Investing in Retirement Funds There are several rules that can also help you realize the most benefit from your 401(k) fund:
Invest in Stocks or Mutual Funds. Maximum capital accumulation is really only going to be realized, if you invest in stocks, or mutual funds, since over time, these investments provide the best returns in the safest manner. Of course, this strategy is a bit riskier than investing in Certificates of Deposits or Money Market Funds, because there will be downturns in the economy or in parts of the economy affecting the stocks of the companies in which your may be invested. But analyzing trends, which the long-term retirement investor ought to be doing, stocks and mutual funds, on average, have outperformed fixed income investments. The higher risks showed up to harm investor returns only in investors with short-term goals. See the Wealth Indices Chart Include Your Personal Goals in your 401(k) Investments. In the employment situation, employees are apt to discuss personal matters more openly, and that includes their financial situations. Discussing financial investment with employees can create a huge amount of stress, a large number of mistakes and many missed opportunities. Many old-time investors will tell you that "you have to slay your own snakes." That means that you, and only you must decide what goals are best for you in your investment opportunities. You know how much risk you can handle. You know what the entire amount of your asset picture is. You know what your debt situation looks like. You know what your spouse can handle. Your goals should be devised as early as possible, as we discussed in the early parts of this website. They should be particular to your situation, and changed to fit life-changing events such as spouse, or children additions. Once they are devised, as long as you are comfortable that they were devised professionally and objectively, you ought to maintain them, regardless of another's comments, suggestions, or "can't miss" stock picks. Utilize Tax-Deferral Concepts. You should see to it that you avail yourself of every possible legal tax deferral opportunity that is at your disposal. There is no law that requires that you pay more taxes than you are required by the existing laws for that year. Tax laws, by their nature, are creations of laws, not obligations of modern ethical judgments. And the goal is accumulation for you and your family, not for what some bureaucrat somewhere thinks you ought to pay. Professional tax planning and financial planning advice can be of outmost assistance in this area, and ought to be utilized if you have the means. Maximum Returns – At Least to the Extent of Your Ability to Sleep. While this is stated in jest, you should seek every opportunity to maximize the return on your investment. Since we are assuming your retirement fund is a long-term accumulation of capital, we are not advocating checking the stock price page every 15 minutes. If fact, this can be self-defeating and cause you to forget your long-term goals. However, we are advocating periodic reassessments of your portfolio and how it is matching or meeting your original investment goals. While it is possible that your goals may need adjusting periodically, it is usually the case that other investments, over time, may be providing more potential returns, than yours during some periods, and you may need to make adjustments. By maximizing returns, we are not talking about gambling with heating oil futures. We are referring to the calculations that you, or your planner should make, that identify the levels of risk that you can afford (recognizing that these may change over the years) and investing in the vehicles that enable you to maximize your returns, within your tolerance for risk. We all know someone who can "push out big chips in Las Vegas", or "buy a block of a high flying technology stock." But, can we do this and still sleep. And, does that person we know really sleep? Does that person really make any money in the long run? Who knows? What is important is that we understand our tolerance for risk and use it to help us accumulate income as best as we can. Diversify The concept of diversification has already been discussed under the section on
Stocks and Mutual Funds. Those concepts will not be repeated here, except to say that diversification may hurt a few of your highest gains, but inevitably, it will also keep you from almost certain losses, during downtimes.
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