If you are fortunate enough to work for a company with a 401k, one of the smartest decisions you can make is to take advantage of their investment plan.
If your company doesn’t offer one, you can always open an IRA and self-mange.
But, according to data from the U.S. Census Bureau, only 32% of Americans are saving for retirement in a 401k (Source). As I mentioned though, this stat is also based on that not every company offers one.
However, you have probably seen other data points about how most people are ill-prepared for retirement or are unsure how their 401k works.
In this post, I’m going to provide you with three simple ways you can get started investing in your 401k effectively without being an expert.
1. Talk to HR or Benefits Specialists (Attend Info Sessions)
When you are first hired or maybe when you are eligible to sign-up for your company’s 401k, you’ll be provided with a gigantic info booklet.
This packet will contain everything about the employee-sponsored plan, fees, funds, how to get started, and a whole bunch of jargon most people either don’t have time to read or it just doesn’t make a whole lot of sense.
I find this completely frustrating too, but don’t ignore it or throw it away!
This will become handy for when you get started. But to make this less painful, you can also talk to your HR representative or a benefits specialist who can help you.
Also, many companies offer info sessions where someone from investment company your organization chose will have a presentation and answer any questions.
As a fresh faced 22 year old joining the job world back in 2010, I knew almost nothing about investing money or 401ks at the time.
But I attended an info session my company at the time held and made me feel less anxious or confused. Take full advantage of any sessions (or person) who can help you get your 401k started on the right track.
2. Ensure you invest enough for the company match
Another important aspect, is to ensure you contribute enough to your 401k to get the company match. If you are a complete noob to 401ks (totally fine!), here’s what this means.
Most companies will offer a company matching program, which can vary. Some may offer 100% match of the first 6% contributed or 100% of the first 3% contribute is also common (Investopedia). Every company plan is slightly different though, so you’ll need to ensure you know how it works.
Based on the first example, if you contribute 6% of your salary, your company will match that contribution. So that 6% for the year was $4,000, your company would add in $4,000.
If you contribute less than the 100% company match on 6%, you’d be leaving free money on the table! After years of compounding interest, you could be missing out on A LOT of money towards your retirement funds.
While having 6% taken out of your pay each year may seem like a decent chunk of money, you’re actually missing out on way more by not ensuring you take full advantage of your company match. Make sure you know what your company 401k offers and at the minimum, contribute to get that company match.
I made this mistake in my first job out of college, which I left four years of money on the table. Don’t be like young, ignorant me. Get your full company match!
3. Minimize any fees with simple fund allocation
Depending what 401k plan your company has, the fees on funds might be somewhat higher which eats at your investment returns. Some fees range from 1% to almost 2% range on your investments, which might not seem like a lot, but adds up over time.
And there can be other fees too associated with your account. But, if your company offers an employer match towards your investments, it makes sense to invest it the plan even if it’s not great overall.
The best thing you can do, is keep your investment strategy diversified and simple to reduce fees as much as possible. Meaning you don’t need to pick ten different funds.
One of the easiest ways to access your fund allocation is to use Blooom. You start by answering some simple questions based on your investing goals and habits. Then you connect your 401k securely, and then Blooom analyzes your investments based on your answers and current portfolio.
After that, you are provided recommendations and analysis to ensure you have diversification, the right funds, and minimal fees. You don’t need to be an expert nor do you need to hire someone to manage your portfolio for you.
There are, of course, some other items to look for to ensure you get the most impact from your 401k plan. But you don’t need to be a financial expert in order to get started and begin preparing for your future retirement.
The above three steps are a great way to get started and building a future financial foundation.
As you continue, spend more time (when you can) in understanding the basics of your 401k plan and the investment funds. You may find other advantages and fund changes you may want to make.
About the Author
Todd is the founder of Invested Wallet, a personal finance and investing website for beginners and beyond. He writes about his pursuit to financial independence, investing tips, saving and making more money, as well as side hustles. If you’re interested in learning more about his story and website, you can start here.
The information is provided for discussion purposes only and should not be considered as advice for your investments. The information is provided for discussion purposes only and should not be considered as advice for your investments. Please consult an investment advisor before you invest.