In recent times the 401(k) retirement vessel has come under heavy scrutiny. Most investors, planners and financial analyst are of the opinion that in comparison to company-provided pensions, the do it yourself 401(k) retirement account falls short by a fair bit. With the global economic meltdown, a lot of investors saw their retirement savings being wiped out in one fair sweep. This of-course is not to say that individuals who had company-provided pensions did not suffer a hit. In perspective the reason why the 401(k) account has been subject to questioning is owing to the fact that a lot of older investors lost nearly all of their life’s savings and were forced to live off a much smaller nest egg then they had hoped for or anticipated. Moreover they never had he time as some of the younger investors do to try and salvage their losses. However, the point we are trying to make is that being able to successfully invest and save with 401(k) account is still an extremely viable option. It is necessary to remember though, that just as you cannot blame a tank for blowing up an entire village, it’s the way it is used that determines the outcome, similarly with a 401(k), it is how you make your 401(k) work for you that determines its effectiveness. Here are some ways in which you can make your 401(k) work for you.

Making The 401 (k) Retirement Plan Work

• Increase Your Savings

In today’s economic climate where several households have suffered reduced income and stagnation coupled with unemployment, increase your savings, is easier said that done. None the less, if you want to be able to retire comfortably, it might be a good idea to increase your savings pattern. The last 10 years were supposedly one of the worst as far as returns on stocks were concerned. In comparison to this it is believed that the next 10 years will provide above par returns. However it would be unfair to expect that the market would take care of all your problems. Where the market cannot meet your requirements, you might to meet those yourself by increasing your savings. In addition to this it might also be beneficial to remember that if your 401(k) account has the increase your savings option, take it. This will help you by making it easier to be disciplined.

• Be Prudent With Your Investments

It should be remembered that larger accounts are more susceptible to market movements than smaller account. The reason for this is that larger accounts are usually held by individuals who are nearing retirement or are about to retire. Hence they stand to stand to lose more with a fall or correction in the market. The solution to this is asset-allocation and portfolio rebalancing. Put simply this means that based on your time to retirement and risk tolerance investment in a diversified range of investments, ranging from direct stocks, to managed funds, bond funds, mutual funds, property funds, commodities etc. Moreover it is also essential that you from time to time rebalance your portfolio to make sure that your are not over or under exposed to any one sector thereby being affected adversely by one while losing out on the gains of the other.

Having said all of the above we also feel that one of the mantras to making your 401(k) work for you is to be flexible. Depending upon the way the market is moving make sure that you are moving in the similar direction. If stocks are falling in value and bonds are rising, it may be time to off load a few stocks and get some bonds and do on and so forth.  The trick is to stay tuned in and take advantage of opportunities that may arise in the market.

Reference:

1. Three Tips to Make Your 401 (k) Work For You – Yahoo! Finance