401k Investment Advice

401k investment plans have been around since the 1980s and is an easy way to invest in your retirement plan without having to think too much. Unfortunately, this lack of strategy has caused many people to overlook many of the options that could have taken better advantage of it. Legislation has affected the guidelines and rules affecting 401k plans to the point of confusion for many people, but with a bit of research, investing appropriately in your 401k plan will not be too difficult.

While many people simply check the box that allocates a percentage of their income to go to a 401k investment account, most of them have no idea what is actually going on with their money. Administering your 401k to the utmost efficiency requires you to understand the basic principles of investing. For example, the worst thing you can possibly do with your 401k is to leave it alone. This is not to suggest you should withdraw your money, but you should at least know what is going on with your investment and where it is invested.

Another important factor in your 401k administration is the taxation aspect. Many people are under the mistaken notion that 401k income is tax-free. That could not be further from the truth as these accounts are only tax-deferred. Rest assured the taxes will be assessed on the money at some point. Myths run rampant on the topic of 401k investment plans, and confusion on how to invest properly keeps many Americans from investing properly, and in some cases – at all.

Seeking advice from competent financial counselors or advisors is an important aspect of intelligent investment. Many companies offer independent financial counselors to their employees as a way for them to take advantage of the investment options available to them. Financial computer programs such as provided by Morningstar and Financial Engines also can help workers to make worthwhile choices with their choices in retirement planning and 401k investments. The lack of knowledge in investment options should never stand in the way of adequate planning, but unfortunately is the number one reason for workers to not opt for the 401k plan at all.

Some companies worry about their workers becoming angry over investment advice and are thereby reluctant to offer services of investment advice. Luckily, Congress decided to pass legislation that protects employers from such liability. With the Pension Protection Act of 2006, Congress said that the advice of financial counselors must be taken from either computer programs, managed accounts, or a flat fee. For example, a financial counselor can provide advice based upon computer software that has third party approval as long as the output is not skewed to any company’s mutual funds over another. Retirement investment plan companies can also use computer software and then use the results to rebalance an employee’s portfolio as long as the results are not tampered with. Finally, the Pension Protection Act says that financial counselors can give advice provided the options of investment are all of the same cost.

If nothing else, invest in your 401k enough to get the full match from your company. It is free money and there is absolutely no reason not to take advantage of this option. Also, do not just let your money sit in bonds or cash when you can look into other options such as targeted maturity funds. If this is not an available option, pick a balanced fund that can spread your money out into stocks as well as cash and bonds.