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Don't forget: if you are contributing to your 401K, your payments lower your adjusted gross income, which may put you into a lower tax bracket. If you're tempted to scrimp on the 401K, calculate how much your monthly investing would save you on taxes as well as the amount you would earn from employer matching. If you're serious about investing, you never turn down free money!
If you work for a major corporation whose share prices are good and whose financial history is strong, it would make sense to own some stock in it whether you work there or not. But it's a mistake to think you should buy stock in your company if it doesn't meet those criteria, either because of company loyalty or because of your knowledge of the company. Investing is often an emotional experience, but choosing your investments should be done with logic: the idea is to make your money work for you, since you've worked so hard for it.
Lots of dot commers (not to mention Enron employees) lost not only their jobs but also their savings by being heavily invested in companies that turned out not to be worth anything. Never overinvest in one stock!
If you have the option of choosing mutual funds over individual stocks in your 401K plan, go with mutual funds. They are diverse, usually managed by experienced stock buyers, and a well managed fund usually has better returns than any one particular stock. But watch out for plans that involve letting employees use a brokerage service to buy and sell stocks (called a "brokerage window"). Sometimes the fees are higher than you would pay if you were dealing directly with a broker yourself.
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