Understand 401K Plans

Investment and stock market lingo can be confusing sometimes, but it is important to know about the economy. Here is a brief tutorial on what a 401(k) plan is.

Understand that a 401(k) plan is created by the company, your employer, which allows you to defer portions of your salary as contributions into investments. Earnings on these 401(k) plans are on a tax-deferred basis as well.

Know that many times, employers make the decision to match the contributions of their employees to motivate them to contribute to their 401(k) plans. This, from my experience, often works and is beneficial to both the employer and the employee.

Realize that employees are not left in the dark on the investments made in the plan! As the employee, you may choose from an array of options including mutual funds, bonds, stocks and a variety of money market investments.

Recall that 401(k) plans are often used as retirement plans, and thus is one of the most popular retirement plans available. They are often used as well because of its convenience -- as an employee benefit, 401(k) plans must be sponsored by your employer. Due to this, it becomes easy for even the non-investment savvy person to become involved with this plan and interact with investments.

Analyze Your 401(k)

I used to pick my 401(k) funds with a dart board. Now, I know how to figure out which ones make me more money. Read on to find out what I've learned about how to compare one against another.

Log on to Fidelity, Vanguard or the financial institution where your 401(k) sits.

Write down the name (and ticker if it's there) of each fund in your portfolio.

Go to yahoo.finance.com.

Type in a stock ticker.

Click on "charts" on the left hand side.

Add all of your stock tickers to where it says: "add compare symbol(s)." You will have a visual of all your mutual funds on one single chart.

Look at your chart and see how well your mutual funds have done over a long period of time. You want to track a long period, 5 or 10 years because the daily, weekly and monthly market is sporadic.

If you've got some bum funds, take a look at what other funds available to you that you can exchange. Note their tickers.

Chart those compared to your funds to find a replacement.

Track your new funds on a quarterly basis to see how well they do.

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