The good news -- you’re saving money through an employer-sponsored retirement plan or an IRA. The bad news … well, when was the last time you looked at the plan closely to see if you were maximizing your returns? Now is a good time to look at simple ways to improve your investment returns.
If you chose a money market fund for your contributions initially because you couldn’t decide which mutual fund to select, don’t leave your money there indefinitely. Money market fund returns are not likely to keep up with inflation. For long-term financial goals, such as retirement, you need your investment returns to be more than the inflation rate.
Decide what help you need to choose the right investment—read material provided by your employer, talk to a friend or advisor, or study other sources of information. Make an appointment, or set a deadline to get this done so your money doesn’t stay in the money market fund forever.
Choose cost-efficient investments. Index mutual funds almost always have lower fees than other mutual funds, which give them an automatic advantage. Some plans, especially 403(b) plans, offer annuities as well as mutual funds. Most annuities have higher fees than mutual funds, which reduce your investment return. Compare expense ratios among similar funds (i.e. large cap funds) to see which ones are more or less expensive to own.
Check to see what fees your plan and/or the investment companies charge. If each company charges $10 or $20 per year, you may be better off choosing one company that offers all the investments you need, rather than spreading your money across several companies.
Contribute sooner rather than later. You want your money to have lots of time to grow before your retire, and even a few months can make a difference with compounding returns. So, enroll in your employer plan as soon as you are eligible. Also, make your IRA contributions earlier in the year, instead of waiting until next April when you file your taxes for this year. The sooner you put the money in, the sooner it can start generating tax-deferred returns for you.
Maximizing your investment returns in your retirement savings plan will help you reach your retirement dreams. To learn about investment options and ways to maximize your investment returns, visit University of Illinois Extension’s website, Plan Well-Retire Well: Your how-to guide at www.RetireWell.uiuc.edu.
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Source: Karen Chan, Extension Educator Consumer and Family Economics
Countryside Extension Center
University of Illinois
(708-352-0109)
Edited by: Lois Smith (618-692-9434)
