Should You Be Managing Your Own Retirement Investments?
Most people will invest into their company's 401k plan if they get the opportunity to
. What is a 401k plan? This is simply a plan where the money that you invest gives you a tax break. For instance if you invest $1000 into your 401k plan one year that money is not taxed until it is taken out of the plan.
Also that money is invested and can grow over time for your future. It really is a great plan, but were not going to talk about it a whole lot here. If you want some more 401k information your company's human resources department should have some information on it.
What we will focus on is who should be the one investing your money? With most mutual funds your money is invested into different mutual funds which invest your money into different securities across the board. It is said to be invested by professionals, yet even so, the majority of the mutual funds out there tend to underperform the market.
There are some advantages to it however. The biggest advantage is that it gives you a lot of diversification, which is one of the most common stock tips that you hear. By contrast most individuals tend to overlook diversification and invest most of their money into their own company or into just a few companies.
Simply investing into a few companies puts you at a great risk of losing all of your money because of some unforeseen event.
It is also a fact that most traders and investors tend to lose their money in the stock market. It is a skill that takes a while to learn, if you learn it at all.
In short it looks like this. When your money is invested into mutual funds it has low risk but it also gives you a low return. If you manage your money yourself the risk is higher but so is the possible return.
This is why the best option is probably to invest into both. Investing money into a 401k can give you your safety.
But for the big return you can open up your own private account or an IRA account and try to invest your money yourself. If you do make it you will be able to retire at a much younger age. If you don't well at least you will have your 401k to lean back on.