Millions of Americans are upside down in their 401(k) or other retirement plan. Are you ready for a one-minute lesson that's going to make you a better investor?
“You’re reaching out to as many people as you can and managing their fear and helping them through it.”
-Darcy Beeman, Edward Jones
That’s how investment adviser Darcy Beeman helped her clients deal with the recent roller coaster ride in stocks.
But if you’re on your own managing your 4014(k) or other retirement plan, you need some simple investment rules so you feel comfortable when it comes to investing.
Here’s your one-minute lesson on how to invest that 401(k). investing. First step? Decide how much you can contribute.
For most people, the answer is at least as much as your employer will match. That’s free money. And if you can afford more, invest more. You’re getting a tax-break, so if you don’t need the money, put it away.
But now the big question: how much of that money do you invest in stocks?
Here’s a simple rule of thumb. Subtract your age from 100. That’s the max you should have in stocks.
So if you’re 20, you’d have up to 80% in stocks. But if you’re 70, you’d only have 30%. And if you’re nervous, reduce those percentages… it’s just a rule of thumb.
Overly simplistic? Maybe. But if more older workers had used this rule, this bear market wouldn’t have caused so much damage to so many retirement plans.
And one last tip: don’t ever invest your retirement savings in the company stock where you work. That’s way too many eggs in one risky basket. And if you don’t believe me, ask someone who works for Citibank or GM.