The goal of investing is to use the money you have to earn even more through returns. Whether you implement your investment strategy through stocks, bonds or mutual funds or a combination of securities, there are ways to increase your odds of gaining returns. When it comes to a 401(k), there are some simple steps you can take to help raise your chances of experiencing higher gains. You can also figure out how much your ideal nest egg should be with a retirement calculator and break down the return rate you’ll need to get there.
Steps to Improving Average 401(k) Return Rates
- Take Advantage of Employer Matches: The absolute best way to increase your 401(k) return is to ensure you sign up for the benefit with your employer. In the long run, you will be able to build tax-deferred rate gains and can even lower the amount of income taxes you pay. Additionally, many employers offer matching contributions, giving you an additional amount of cash on top of your already negotiated salary. Make sure to take the maximum contribution your employer will match to ensure the greatest return.
- Diversify Investments: Make sure that your 401(k) investments are diversified to include some higher yielding investments. By playing it safe with your 401(k), you risk the chance of not keeping pace with the average inflation rate of 3 percent and not allowing your money to earn the most it possibly can. If you are taking high risks in your 401(k), make sure to diversify your holdings with some safer cash-based investments elsewhere just to balance the overall strategy.
- Asset Allocation: Within your asset allocation, make sure no one fund holds more than 5 percent of your total portfolio. By regularly reviewing your 401(k) plan and redistributing the assets, you will prevent putting too many eggs in one basket and increase your odds of greater returns.
Also, if your company offers stock options as a benefit there is no need to purchase more stock through your 401(k). Use those additional funds to find other types of investment options as a way to maximize your investment yields.