Manage Your Money... Utilize Retirement Plans

If you are like me and watch the market everyday then you might be asking yourself why am I putting money into my 401K, Roth IRA, Traditional IRA, etc.  The answer is this.  Being an optimist, over time you will be dollar-cost-averaging and buying at lower multiples.  Over time your investments should increase.  The 20 year annualized return of the S&P 500 is about 8.22% and 25 year is about 9.61%.  That's not bad!

For your 401K you are allowed the maximum contribution of $16,500 for 2009 and catch up contributions allow for a maximum of $5,500 for individuals who are 50 and above.

By maxing out your retirement funds you are minimizing the taxes you will pay on your total income.  Also know that the money that is being put into that 401K is tax deductible compared to a Roth IRA which has already been taxed.  Also, the difference with a 401k and Roth IRA is that the Roth IRA is tax-free when you take the money out after you reach the age of 59 1/2.  You can invest in a Roth IRA along with your 401K as long as you don't make more than $101,000 for single filers and $159,000 for married filers.  The maximum contributions you can make to your Roth IRA is $5,000 and $6,000 if you are older than 50.  You can have multiple Roth IRA accounts but know that you can only contribute the maximum of $5k for the year.

While 401k funds differ from every employer, there will be many funds to choose from depending on how you want your portfolio to look.  My breakdown is as follows:

Small cap: 30%

International: 20%

Bonds:20%

Large Cap: 30%

This breakdown would be suited for someone who has more of a long-term investment strategy and someone who is willing to take on more risk at this juncture.  For more senior individuals I would suggest a greater emphasis on bonds, cash, and small-cap.  In this troubled market, you will be buying at low prices and over time the market will return. (lets hope so)

If you don't have a 401k and set up your own traditional IRA look at Fidelity, Vanguard, T.Rowe Price, and others.

William O'Neill had an investment strategy called CANSLIM... take a look:

 http://en.wikipedia.org/wiki/CAN_SLIM

Final Word: Invest in those retirement accounts as they will serve you well in the long run.  For those individuals who are above the age of 50, I still recommend maxing out those accounts but to be heavier in bonds, cash, and small cap.  *Small-cap funds will return better numbers before large-cap*

Questions/comments - contact "The Deal"