Investing your money in a 401k account is one of the best decisions you’ll ever make. The huge benefit of being allowed to set aside tax-deferred income for retirement purposes is one that you should not turn down. Some investors are overwhelmed by the thought of managing a 401k account on their own, but if you are well-prepared it is something that almost everyone is capable of doing. How do you go about properly managing a 401k account? Let’s take a look at five tips that will help get you on the right track to managing your 401k account.

Five Tips To Consider When Managing Your 401k Account

1. Find All the Available Investment Options- Different 401k plans have different investment options available, but before doing anything else you should certainly find out all the possibilities you have. The average 401k plan will have somewhere around 15 to 20 mutual funds to choose from, and these funds will come from many different asset categories. In addition to these mutual funds, there should always be some kind of guaranteed return option available to you. This is a money market fund that is often called a “stable value” fund.

2. Align Your Investments with Personal Financial Goals- Before you invest in the 401k account you should always make sure you have a clear idea of what your current financial situation is and where you want to be in the future. Remember, this 401k account is a retirement savings account, so you’ll want to keep your goals focused on the long-term. After considering your own financial goals, you should take a look at the available investments in the 401k account and see which ones will help you get to where you want to be. Also be mindful that you could eventually perform a 401k rollover into an IRA if you change employers at any point in your career.

3. Always Max Out Any Matching Contributions- If you are fortunate enough to work for a company that offers any kind of 401k matching contribution, make sure you take full advantage of this terrific deal. There are very few times where you can actually say there is a chance for free money, but this is fits the bill perfectly. How big can this be? Some companies match your investment dollar for dollar for up to around 5% of your annual earnings. If you earn $70,000 per year that means the company will match up to $3,500 each year in contributions. This literally is a free $3,500 that you would not have had otherwise. If you don’t max out your matching contributions you are making a huge mistake.

4. Use a Hands-On Investing Approach- I fully believe that in managing a 401k account the investor should always take a hands-on investing approach. This means checking your account at least on a weekly basis and staying up to date with the overall market. You should always be aware of outside factors that could alter the value of your retirement savings. Take a look at the prospectus of each mutual fund that you have invested in, and always consider any new options that may become available inside your 401k plan.

5. Use Age Appropriate Asset Allocation- There is no single right or wrong amount to have in any particular asset class at one time or another, but be wise with your asset allocation based on your age and retirement time frame. If you are going to retire soon, it is often wise to consider moving most of your money into either a bond fund or the stable value option. On the other hand, if you are young and have just opened your 401k account, it is a good idea to be more aggressive when choosing your investments.

Managing your 401k account requires some time and dedication, but this is an investment that is well worth the extra effort!