A retirement fund is extremely important for any employee because it allows them to have a steady stream of passive income as well as some savings just for a rainy day. This retirement fund is also known as a 401k and is a type of savings account that employers would provide for their employees in order to help their money grow. To further supplement this income, it is also good to learn how to how to invest in your 401k wisely to fully maximize its benefits.
The first tip to take note of would be to simply start off very early. There is no magical number or age as to when one should start but it really should be when one starts earning his or her first paycheck. This is to help take advantage of the compound interest that will be given to the employees through years of contribution.
As mentioned above, compound interest is what will be applied in this retirement fund. Now, just to give an idea, compound interest is the type of interest that compounds over time through monthly interest percentage. As compared to simple interest, one can earn much more through compound interest.
It might be a bit complicated to understand so here is an example. If one puts in five thousand dollars in a mutual fund with three percent interest, he or she will earn one fifty dollars interest income. During the next month, he or she will then earn interest based on the principal amount, which is five thousand, and the interest of the current month which is one hundred and fifty.
Now that one knows how it works, the next thing to do is choose the savings rate that is most suitable. The key here is to not contribute too much nor contribute too little. An ideal amount would be something like ten to fifteen percent of the monthly salary so that one would have enough for bills.
Now, the next thing to think about would be the retirement fund. One actually has the liberty to choose which of the mediums he or she would want inside his or her mutual fund. In order to have a properly diversified portfolio, one must have a lot of different mediums in the fund that contribute to the total fund.
The typical mutual fund would be a large cap stock or index fund, small stocks, foreign stocks, bonds, and money market or time deposits. The percentage would be something like forty percent in index, fifteen percent foreign stock, thirty percent bonds, ten percent small stocks, and point five percent time deposits. This makes the mutual fund a diversified medium risk mutual fund.
These are some things to take note of when investing in your 401k money. Always remember that financial literacy can help one be able to fully utilize the capacities of the retirement fund. That way, one will know exactly how much money he or she will make in passive income.
The first tip to take note of would be to simply start off very early. There is no magical number or age as to when one should start but it really should be when one starts earning his or her first paycheck. This is to help take advantage of the compound interest that will be given to the employees through years of contribution.
As mentioned above, compound interest is what will be applied in this retirement fund. Now, just to give an idea, compound interest is the type of interest that compounds over time through monthly interest percentage. As compared to simple interest, one can earn much more through compound interest.
It might be a bit complicated to understand so here is an example. If one puts in five thousand dollars in a mutual fund with three percent interest, he or she will earn one fifty dollars interest income. During the next month, he or she will then earn interest based on the principal amount, which is five thousand, and the interest of the current month which is one hundred and fifty.
Now that one knows how it works, the next thing to do is choose the savings rate that is most suitable. The key here is to not contribute too much nor contribute too little. An ideal amount would be something like ten to fifteen percent of the monthly salary so that one would have enough for bills.
Now, the next thing to think about would be the retirement fund. One actually has the liberty to choose which of the mediums he or she would want inside his or her mutual fund. In order to have a properly diversified portfolio, one must have a lot of different mediums in the fund that contribute to the total fund.
The typical mutual fund would be a large cap stock or index fund, small stocks, foreign stocks, bonds, and money market or time deposits. The percentage would be something like forty percent in index, fifteen percent foreign stock, thirty percent bonds, ten percent small stocks, and point five percent time deposits. This makes the mutual fund a diversified medium risk mutual fund.
These are some things to take note of when investing in your 401k money. Always remember that financial literacy can help one be able to fully utilize the capacities of the retirement fund. That way, one will know exactly how much money he or she will make in passive income.
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