Don't be afraid to invest in your 401(k) – it's your retirement!
Many of us want to get started but aren't quite sure where or how to invest.
Invest in Your 401(k)
Saving for retirement is probably one of the most important financial steps that you will take in your life. Unfortunately, very few people actually do it well. The best and easiest way for most people to save for retirement is through their company's 401(k) plans.
My number-one piece of advice is that it is never too early or late to start investing in your company's 401(k). The earlier you start investing in your 401(k), the more time it will have to grow. If your company automatically enrolls you in its 401(k), do not opt out. It will force you to save money.
Next, make sure you diversify your investments. Most of your money, no matter your age, should be in stocks and stock mutual funds, and a small amount should be in bonds and cash, less than 10 percent combined. The simple reason is that stocks have historically returned more than other types of investments, so you build more wealth faster. Remember, you cannot withdraw from your 401(k) without a penalty until you are 59 1/2, so don't let daily changes in the market change your savings habits. Finally, if possible do not take a loan or withdrawal against your 401(k). Not only will you have to pay penalties and extra taxes, but you will also be hurting your savings.
Open an IRA
What if your company does not have a 401(k)? Then you should invest in an Individual Retirement Account (IRA) as soon as possible.
In these accounts you can buy stocks and mutual funds just as in any other account. You can open these accounts with almost any brokerage or mutual fund firm, and you can contribute up to $5,000 annually, or $6,000 if you are 50 or older. You can start withdrawing from an IRA, penalty-free, starting when you're 59 1/2. Your broker should be able to help you determine what type of IRA is right for you.