A 401k is the most common type of investment plan for retirement. They are offered through the company you work for and are composed of a mix of stocks, mutual funds, and bonds. You can change the composition periodically. Businesses offer 401ks to their employees as an incentive. A company will often match a certain percentage you put into the fund, sometimes as much as dollar for dollar.
You choose the amount of money you want to invest in a 401k. Do not think a low amount is not worth investing, especially if you are just starting out. A mere $20 a week can go a long way. 401ks are long-term investments, so it is wise gradually increase your investment. The key is to invest something.
401ks do come with some risks. Unlike a regular savings account that accrues interest, the amount of money in your 401k can fluctuate. This is due to the type of investments you put your money towards. If your 401k is comprised of primarily stocks, you can run into a dilemma where the stock market plummets and you lose a big chunk of your investment. Since the stock market is unpredictable, such an event is unforeseen.
Due to such risks, it is wise that you have a wide mix of investments. This way if one area does not do so well in a given year, another will likely compensate. It is also important that you periodically check your 401k and reallocate the investments as needed.
You should also take a look at your financial situation at least once a year to determine whether you should invest more into your retirement fund. If you’re hesitant about adding more of your paycheck to a 401k, you can also look at other options such as an individual retirement account (IRA) or a money market account. Any investment, risky as it may be, is better than not investing for retirement at all.