Laboring for the Future

In the wake of Labor Day, you should consider whether your hard-earned money is doing the most for your future. With pensions almost extinct, how can you make your 401k work harder for a better retirement?

Here are five relatively easy things you can do to improve your future financial situation:

  1. Take the free money. Find a way to contribute at least enough to take advantage of your employer’s matching contributions. According to the Plan Sponsor Council of America, over half of 401k plans add between 50 cents and $1 for every dollar you contribute (up to a certain limit). That’s an immediate (and safe) 50% to 100% return on your investment!
  2. Fees matter. If you pay less, you should make more. If you have index fund options, use those first. Avoid high fee actively managed mutual funds and stay away from very high-fee insurance products like variable annuities. There is little evidence that the extra cost of active management can add to your returns.
  3. Be as aggressive as you can comfortably be with your retirement portfolio. Your retirement account is not money you should need in emergencies, so it can ride the markets ups and downs. Over the past 20 years a fund of short/intermediate bonds returned approximately 3.5% per year while the Standard & Poors 500 index would have averaged over 9.5% per year over the same period (even though we suffered through TWO bad bear markets over that time. 
  4. Build a diversified portfolio using the best funds in your company plan and then supplement missing asset classes in your IRAs and other investment accounts. It isn’t likely that your plan will have small value stock funds or emerging markets. So, focus your company retirement money in the best funds available in typical 401k asset classes like large cap growth and bonds. Then, open a Roth IRA to invest in those asset classes your plan is missing.
  5. Don’t allocate any of your contributions into your company stock. In fact, if your firm doesn’t require that matching dollars go into company stock, invest in almost anything else. This is not an act of disloyalty, nor is your firm’s stock necessarily a bad investment. It’s just too risky to own any individual stock. Any single stock can become worthless (even yours), but the world’s economy probably won’t (and if it does, your portfolio will be the least of your worries).

For more on making the best of your company plan and to help create the best possible portfolio, visit