Should You Invest in Your Company’s 401(k)?

Note: This post was originally published on RuleOneInvesting.com

A 401(k) program can be a very important part of saving for retirement. Especially if the company you work for matches you money. Are there any drawbacks to putting your money in a 401(k)? There could be.

The main thing to remember is to always be informed of where your money is going and if it’s growing enough for you to retire when you want to.

In this video, I’ll explain what a 401(k) is and what options you have when choosing to invest in one.

Are you ready for an early retirement? Use this tool to find out exactly how much you’ll need to retire comfortably.

What is a 401(k)?

A 401(k) is a simple government program designed to take pre-tax dollars at your company and put it into a retirement savings account. Many 401(k) programs are highly structured by your corporation and they only allow you to invest a certain amount of capital in them, but many companies will add a chunk of capital into that program with you. They can match a certain amount of money that you’re putting away.

What Options do You Have When You Invest in a 401(k)?

Unfortunately, most 401(k) programs are incredibly restrictive. They’re focused on mutual funds and exchange traded funds.

In other words, they are highly diversified forms of investing. Forms of investing that unfortunately don’t allow you to pick individual stocks. What that means is that you may end up stuck with an average rate of return of whatever the market is or less, and you’re paying fees on top of that.

I don’t love those type of 401(k) programs and I’m going to encourage you to ask your company if they would give you access to your own brokerage account so that you can invest in individual companies.

Should You Invest in a 401(k)?

You have to make a decision here, because you have 2 options.

  1. If your 401(k) is being matched by your company, that’s free money and most financial advisers would encourage you to take it.
  2. On the other hand, if you’re a pretty good investor an your 401(k) program only requires or only allows you to invest in just ETFs and mutual funds, you might do better by taking the money out and just putting it into a regular IRA of your own and then invest it on your own.

I’d love to hear from you. Do you participate in your own company’s 401(k) program? Do you know how much you’ll need to retire and is it going to get you there? Use my free retirement calculator to find out exactly how much you’ll need.