When you’re young, time is on your side, financially speaking. You can ignore the ups and downs of the stock market and know that—over the long term—stocks outperform all other investments. And the younger the age at which you begin saving, the easier it is to achieve wealth for your retirement years. Billshark would like you to consider the avenue of 401(k) investing as a viable way to reach millionaire status by the time you’re ready to retire. Think it can’t be done? Lots of people have already done it, but it takes time and determination.
Last month, the mutual fund investment firm Vanguard released its annual retirement report on those with investments in plans their firm manages. It turns out that a record number of 401(k) participants have achieved millionaire status: 196,000. Those with individual retirement accounts (IRAs) also achieved a record high, at 179,000 participants with over a million dollars in assets.
While these now-wealthy investors are admittedly a small number of those who participate in Vanguard’s accounts, it shows it can be done. Here’s how:
The earlier you begin, the more you’ll have at retirement. It may be difficult when you’re just starting out to set aside money, but the advantage of a 401(k) plan is that you have it taken out of your pre-tax earnings, so not only are you saving on taxes, but you never see the money. You can pretend it’s just one of all the other deductions that come out of your paycheck. In addition, you won’t be trying to play catch-up as you get closer to retirement.
Contribute the maximum
Pay yourself first is the cardinal rule. Be sure to contribute what you must in order to receive your employer match, then put in more if you can. For 2019, employees are allowed to contribute up to $19,000 a year (up to $25,000 if the worker is age 50 or older).
When you receive bonuses, tax returns, unexpected legacies from relatives’ wills, or any other unexpected lump of cash, add it to your savings instead of spending it.
If you’re starting young, you can afford to take more risks, so steer away from bonds in favor of stocks. And diversify your portfolio—that means not putting all your eggs in one basket, or in this case, one particular stock or type of stock. Index funds usually have lower management fees than those associated with actively managed funds. Do your homework when deciding how to allocate your money.
Resist the urge to panic
Vanguard analyzed more than 58,000 IRA accounts over a five-year period. It found that those who maintained a diversified mix of assets even during market fluctuations did the best overall.
“For the most part, investors fared reasonably well by choosing low-cost investments and staying the course, even in the midst of a turbulent investment period,” analysts reported. “However, a subset of accounts did not fare as well: those who ‘changed course’ and exchanged money between funds. . . . Some of the exchanges were surely reactions to market events, and these investors paid a price for failing to maintain portfolio discipline.”
Ignore your nest egg
“Investors in 401(k)s need to be emotionally detached from these funds,” Robert Bilkie, president of Sigma Investment Counselors, told the Detroit Free Press. “They have to view them as assets that are virtually locked away from the outset and recognize that the value of their investments will fluctuate, sometimes painfully so.”
That means not only ignoring stock market downturns, but also not cashing out when you switch jobs, or taking out loans for any reason.
And if you’re looking to find a little extra cash to stash in your 401(k) or other retirement account, look to Billshark. We have saved people like you hundreds or even thousands of dollars on their bills. It costs you nothing to let us try, so contact us today.