Very helpful insight here from the Small Investor on how to manage your 401K. This is something I struggle with (hello auto pilot) and I thought might be helpful to others. Nothing like managing your money well to feel empowered! Please go to the author’s blog if you wish to comment.
Investing in stocks in a 401K is actually quite simple. The reason is that, unlike a traditional brokerage account where your investment options are nearly limitless, your choices of investments are usually fairly limited in your 401k. The secret is simply to create an account with as much diversification as you can and then maintain that diversification.
Step 1: Selecting a Contribution Amount
When you start working Human Resources will send you a form, along with all of the packet of other forms, on which you specify your 401K contributions. Typically one defines a percentage of your pay to put away each month.
You should be contributing about 15% of your pay to retirement. This will allow you to save enough to replace your income in retirement without depleting your resources. Using the different accounts available, here is how you should allocate that 15%:
1. Fund your 401K up to…
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