Do you make the most of your 401 (k)? | Personal Finance

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  Do you make the most of your 401 (k)?  |  Personal Finance

2. Am I investing aggressively enough?

Now you generally can’t buy individual stocks in a 401(k). But you can invest in different funds with a stock-focused strategy.

3. Am I avoiding needlessly high fees?

The 8% return we used in the preceding example is a few percentage points below the stock market’s historical average. If you stick mostly to bonds in your retirement plan, the return you get may be closer to 3% or 4%, which won’t result in nearly as much growth.

Story Highlights

  • Now, say you manage to snag a free $3,600 a year from your employer over a 20-year period. If your 401(k) delivers an average annual 8% return (we’ll discuss that in a bit), you’ll wind up with about $165,000 in savings based on your company’s contributions alone.

  • There’s risk involved in putting your savings into stocks, since they’ve historically been far more volatile than bonds. But if you want to enjoy strong returns in your 401(k), then stocks are the way to go.

Most savers have different 401(k) funds they can choose to invest in. Chances are, your plan contains a mix of actively managed mutual funds and passively managed index funds.