What is a 401K?
401K’s are a popular type of retirement plan where money from each paycheck is invested into a stock market fund. The money collected into the funds is then invested in different stocks. The portfolio of stocks allows you to be diversified in the stock market. This means that your money is spread out across a number of stocks which allows for more consistent returns and lower risk.
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Pre Tax
401K’s are pre tax investments. This means that you only pay taxes when the money is taken out of the account. Because of this you can lower the amount of taxable income you make in a year.
Employer Match
Many employers offer a 401K match program. My company offers to match 6% of my salary yearly if I put 8% into my account. This means that if I put 8% or more of my salary into my 401k, my company will pay 6% into my account. That money adds up fast and helps you get better returns on your investment.
The Power Of The Stock Market
My favorite thing about the stock market is compound interest. Compound interest can cause massive growth for your investment. As you gain interest over time you are gaining interest on the money you put in as well as the money you have earned from past interest. This can cause a snowball effect and is a massive boost for your investment. The best way to capitalize on this is to invest early to give your investment more time to grow.
Roth IRA’s and Mutual Funds
Roth IRA’s are another popular retirement program. They work like 401Ks but they are after tax. This means you pay your taxes up front instead of having to pay taxes when you take the money out. This can be a powerful investment tool
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