Wondering how to boost those returns in your 401(k)?
Is there really a way to make more money in my 401(k)?
Actually, there are a few things you can do to improve your 401(k) performance. No, it doesn't involve the exciting world of day-trading your 401(k)! Plus, you don't have to be an expert at picking investments either. You just need to do a few small things, and none of them will cost you money!
Here are some ways to maximize your 401(k) returns:
1. Choose low-cost investments.
Let's face it, your 401(k) is like any business. It's not how much you make, but how much you keep. High investment fees erode your return. Look for a few index type of investments in your investment menu if they are available. If there are two investments with similar returns then choose the one that costs less. However, don't pick a low cost investment just because it's cheap. There may be a better investment that has higher fees. You have to look at what you get after the fees are paid.
2. Get all the company match, silly.
If you don't do anything else on this list, make sure you contribute enough to get your company's full match. It's free money! If you saw money laying on the street, wouldn't you pick it up? The match is the same thing. It's free money, just laying there waiting to be picked up. If your match is 100% on the first 6% of your pay and you make $50,000, then that's $3,000 of free money! Check your withholding today and raise it to the company match amount.
3. Diversify, diversify, diversify.
Most 401(k) plans have a slew of target retirement date, asset allocation and fund of funds choices. It's up to you to take advantage. These are especially useful if you have not diversified in the past. I see a lot of employees just pick a handful of investments that have good returns. Remember, yesterday's winners might be today's laggards. Make sure you have a diversified portfolio. It will give you the best chance to make money in all types of markets, good and bad.
4. Two heads are better than one.
It's always curious to me that 401(k) participants do not seek out the advisor on the plan for their help. This advice is usually free. It could potentially help you improve your returns through professional investment selection. Don't be embarrassed of your balance or your previous decisions. The advisor is there to help, and gets paid to do it. Next time he or she visits, try to grab 10 minutes for them to review your balance and holdings. You'll be glad you did.
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