DON’T MISS OUT ON THIS 401(K) GROWTH OPPORTUNITY
expense ratio, while the tax-cost ratio is whatever capital gains taxes are triggered if the fund is outside of a tax-advantaged account like a 401(k). In this case, as we’re exploring how to grow your 401(k), you would only have to worry about the expense ratio. You should research which index funds have the lowest expense ratios and their investment strategies — what type of industries (energy, technology, etc.) they invest in. Small-, mid-, and large- cap indexes track small, medium, and large companies. Figuring out which sector you want to invest in within these categories is also crucial. Also, consider foreign, domestic, or a combination within emerging markets. You’ll find many choices, but ultimately, you just need to choose one that best suits your needs. Okay, I’m convinced. What’s next? Once you decide, you can invest in the fund that suits your needs. Consider convenience, costs, commission-free options, and whether you want your investment to reflect your ethics. After investing, review the fund regularly to ensure it still measures up by looking at your mutual fund’s quote page. If fees start climbing or your fund isn’t doing its job (rate of return), you can always switch to another. Also, consider diversifying your portfolio by investing in multiple index funds. We know this is a lot of information, but we hope this 101 on low- cost index funds has given you a new option to consider. It’s one of the safest, low-cost ways to boost your 401(k). Your options are broad, and we welcome your questions. We’re here to help; reach out to our office to schedule an appointment.
Planning for retirement can be exciting — deciding where you’ll travel, what hobbies to pick up, or how to otherwise fill your time in your golden years. The hardest part is planning with the optimal financial tools. The goal is for your investments (combined with Social Security) to take care of you in retirement, not to wonder why the investments you put your hard-earned money into didn’t pan out. And as with all financial decisions, you must carefully weigh your options for growing your 401(k). This article will explore one tool specifically, the low-cost index fund, which can effectively grow your 401(k) with minimal expense.
“The goal is for your investments (combined with Social Security) to take care of you in retirement, not to wonder why the investments you put your hard-earned money into didn’t pan out.”
What is a low-cost index fund? Low-cost index funds can diversify your investments without a huge price tag. This pre-set index of stocks is often either a mutual fund or an exchange-traded fund (ETF). These funds follow popular indexes, which frequently point to the overall economy. The Standard and Poor’s 500 index is one example. The Dow Jones Industrial Average is another. They’re staples of investing and offer security and stability for many investors. Index funds aim to mirror the performance of a specific index. So, no real management is necessary for this fund since they don’t try to outsmart the market or beat its averages. That’s what keeps costs low within the index. Because the fund is not actively managed, the costs are usually lower. Why choose a low-cost index fund? Comparatively, a low-cost index fund only requires an investment minimum (many times as low as $500–$1,000 initial investment) and an account minimum. Both of these can be as low as zero, especially for those with a Roth or Traditional IRA. The main cost is the expense and tax-cost ratios. The fees subtracted from any returns is the
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