Entering the workforce is an exciting time for any young, former college student. Opportunity abounds and so does the potential for banking a lot of money. The wonders of compound interest are great at this time. Starting to save through a 401K for your retirement at 22, right out of school is a savvy financial move. You are going to thank your 22-year-old self when you are 65. The ability to sock away money is a practicable skill and starting early has benefits that stretch across decades.
Your 401K account is the best place to start. Many companies offer a 401K retirement plan as part of a benefits package and many also offer matching funds. Matching funds is one of the greatest aspects of 401K saving, because it is free money. When you contribute the full percentage of your salary to get the match, not only are you getting extra money this year from your employer, you are also getting the opportunity to compound those matching funds over time. Remember, the more money you have in your investment account, the higher a percentage that you can make over the years.
Every time you get a raise, try to add it into your 401K. The more money you get in there now, the more money you will have when you retire. Workers under 50 can contribute up to $18,000 per year into their 401K. Now, right out of college, chances are you can’t get close to that. But you should try to put in 10% of your paycheck into your 401K, every pay period. And budget well, so that when you get a raise for being such a great employee, you need to add that extra cash right into your 401K instead of paying down your credit card debt.
Try to avoid those high fees. Sometimes, you might not have much control over where your 401K account is invested. Your employers might be able to control that decision for many of your initial years at your job. However, once you are vested you can make the call as to where your money is being invested. At that point, you want to avoid actively managed funds and go with index funds. Because index funds track existing groups of stocks and bonds, there are lower fees associated with those than funds that have brokers picking and choosing which stocks to buy. Active managers do not outperform index funds over the long haul. It is much simpler and more lucrative to go with index funds.
Can you actively trade your 401K account yourself? Sure, it is possible. Now, it is a bit harder to day trade that money than it is to make a few trades a month and buy stocks that you really like. Day trading requires multiple trades per day, most of the time, and many 401K accounts are restricted in the amount of trades that you can make and how those trades are structured. For example, you almost certainly will not be able to trade on margin, meaning trading on credit. 401K accounts are not set up for that. But if you learn the right day trading strategies, perhaps you could make some pretty good profits by taking control of your 401K funds.