I don’t have time to wax philosophic on the most popular and revolutionary investment method. This is a 101: a quick and dirty history, some factoids and tips on what to do with your 401(k). As with any article relating to your personal finances, check with your counselors before you do anything.
401(k) points to Section 401, Item k of the Internal Revenue Code, established in 1978: Basically, it allows for pre-tax contributions (up to $15,000 a year) into a private investment portfolio. The 401(k) portfolio was originally a perk for high-income executives and has become a standard fringe benefit. You can roll your 401(k) portfolio from company to company, take a loan against it or even cash out (with severe penalties).
While it’s a great way to save and invest money, the 401(k) provision has led to the dismantling of corporate retirement plans and pensions. It’s a peek into what I feel is inevitable: private (ahem, personal) savings accounts. While it helps us manage more of our own money, unfortunately, most don’t know what to do.
Your Human Resources department will mostly likely have an expert (ahem, a salesperson) from a major financial investment services firm. They should walk you through the process, but beware. It may be boring, incomplete or biased. I’ve tried to provide some universal guidelines below.
Start watching the financial news, read investment magazines, and pick up a book or two. Become comfortable with the common terms–it’s all logical English. Fear, apathy and ignorance lead to bad choices.
Open your 401(k) portfolio as soon as you can. The financial markets have always risen over the course of a generation; don’t be afraid of short-term volatility. Every payday, money will automatically be invested. This forces you to save.
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