How and Why You Should Build a Well-Balanced Retirement Portfolio

If you have monitored the global financial markets as of late, you might have come across an interesting theme: one day up and one day down.

It has been a rough start to 2022 for equities as the leading U.S. stock market indexes, such as the Dow Jones Industrial Average and the Nasdaq Composite Index, have been battered. You cannot forget about the S&P 500, as only eight non-energy S&P companies have recorded double-digit percentage gains this year.

This is why it is crucial to possess a well-balanced retirement portfolio so your money can adapt to the changing landscapes. Everything goes through a cycle.

In 2020, it was all about tech. In 2021, it was electric vehicles. In 2022, it is all about energy.

By having a balanced retirement portfolio, you can shield yourself from volatility, risk, and chaos and take advantage of the rallies in certain sectors.

So, what does this all mean anyway? You may not be retiring tomorrow, but it is still a prudent idea to prepare today if you intend on retiring comfortably.

What Does a Well-Balanced Retirement Portfolio Look Like?

Typically, a balanced portfolio consists of a blend of stocks and bonds, be it for retirement or your medium-term investment goals. This is the 60/40 split that financial experts regularly talk about.

Within this portfolio, you also aim to balance the stocks and bonds. So, for instance, you will want to diversify your equity holdings with different sectors, foreign markets, and index funds. Ditto for your bonds.

Of course, many factors at play can and should influence how or what you want to invest in. For example, do you want to generate income with dividends, or do you want to maximize capital gains from stock appreciation? Or, do tax savings matter more to you than maxing out your potential gain?

How to Build a Well-Balanced Retirement Portfolio

So, how do you even construct a well-balanced retirement portfolio? Here are the necessary steps you need to take, whether you are just starting out or you are trying to play a game of catch-up.

Asset Allocation

How much capital do you have right now? How much time do you have until you need the money and retire? What are your current obligations?

Ultimately, your current personal and financial situation could play a big role in achieving the desired retirement portfolio. Put simply, a 20-something without dependents can begin with a unique investment strategy, while a 60-year-old married individual looking to invest while putting his or her kid through college will have different priorities.

Value or growth? Exchange-traded funds (ETFs) or mutual funds? Tech or commodities? Canada or Europe? These are the questions you’ll have to consider.

Need help? Read The 3 Best ETF Investment Strategies.

Risk Tolerance

When you choose a reputable stock broker to open a brokerage account, you will likely be asked the following question: Are you comfortable losing $2,000 on a $10,000 investment if it means you could earn $2,000? This question is meant to determine your risk tolerance.

Indeed, the more risk you can endure, the more aggressive your portfolio will be. Of course, at the same time, the less risk you can tolerate, the more conservative your investment endeavors will be in the years to come.

Value vs. Growth

In the financial markets, you regularly hear about growth and value stocks. A growth stock is a company that might have the opportunity to outperform the broader equities arena. A value stock is a security trading below its real value and could provide a spectacular return.

The former could result in monumental gains in a short period, while the latter could offer a steady return as time goes by.

Put simply, what do you want your stock picks to look like this:

  • Tesla Motors
  • Meta
  • Netflix
  • Advanced Micro Devices
  • Shopify

Or like this:

  • Procter and Gamble
  • Johnson & Johnson
  • JP Morgan Chase
  • Exxon
  • CVS Health


On the one hand, you want a diverse portfolio. On the other, as billionaire Warren Buffet contends, you do not want to be so diverse that you don’t know what you are doing.

In addition to the 60/40 rule, you also want to make your portfolio tap into areas of the marketplace that you think are poised for growth and long-term value. A greater weight in energy and entertainment is welcomed, and any losses could be offset by gains in retail and automobiles.

Your best bet in this regard is to pick one or two investment funds and then three or four individual stocks with long-term potential. To help you make the right decision to get started, read our list of the best brokers for commodity trading.

Routine Rebalancing

If you are active with your retirement portfolio, you need to consider two measures you need to perform once in a while: changing portfolio weightings and rebalancing when necessary.

The former might need to be done when price movements lead to your initial weightings being modified. The latter happens when a specific market has ended its bull or bear run and is poised for remarkable gains or notable losses.

Your stock picks need to be reshuffled once in a while. If you have index funds, this might not be as critical.

What Kind of Return Can You Expect From a Balanced Retirement Portfolio?

Over time, there is only one direction for the U.S. stock market: Up. Sure, there are many moments in time when there is a massive selloff and enormous downturn. However, following these declines, the market roars back to life. Is this a permanent trajectory? The future is not easy to predict.

In the end, a balanced retirement portfolio can yield an average annual return of between 7.8% and 8.7%. When inflation is running around eight percent, balance will likely become your chief aim in investing.

Pros and Cons of Investing in Fractional Shares: Is It Worth It?

Have you dreamed of owning Amazon stock?

Despite its recent selloff on the New York Stock Exchange, Amazon shares are still trading at around $2,400, so a buying opportunity can remain challenging to achieve.

But have you thought about employing fractional share trading?

In recent years, fractional share investing has become all the rage, especially for newcomers in the trading scene who want to get in on some of the hottest stocks on the market, from Amazon to Tesla Motors.

This investment endeavor consists of owning less than a single share of a company. Your ownership of the stock is based on the dollar amount you wish to invest, starting from as little as a buck. Read on to learn more.

How Do Fractional Shares Work?

Not everyone can afford to buy 100 shares of JPMorgan Chase or McDonald’s, setting you back a few thousand dollars.

However, fractional share trading allows you to partake in diversification at a low cost since you need very little capital to get started.

Let’s say you want to purchase shares in Microsoft Corporation, which is trading at just under $300. This can be a lot of money to gather for many individuals. What you could do instead is acquire, for example, one-third of a share in Microsoft, costing you around $100.

This way, you can build a wider pool of investments on your budget while also investing in companies you believe in. Sure, it might not work when you are planning a comfortable retirement, but it serves a purpose when starting out.

The other common method of utilizing fractional share trading to your advantage is a stock split. This is when the company increases the number of outstanding shares by issuing more to its investors.

Pros of Investing in Fractional Shares

No Barriers

The first key advantage is that you can begin your trading with very little capital, meaning there is no barrier to entry. Be it $1 or $10, you can invest in Walmart or Exxon Mobil.

Alleviate Your FOMO

If you could not take advantage of the sharp decline in stocks at the beginning of the coronavirus pandemic, you need not worry as fractional share investing still helps you expose your portfolio to the best of the best, whether it is Alphabet or Facebook, and engage in greater asset allocation.

Dollar-Cost Averaging

It might not seem like it, but $10, $20, or $30 a week in buying stocks can go a long way in the future. Why? Dollar-cost averaging, or DCA. This is when you buy positions in a company regularly at any price to avoid volatility and take advantage of the dips. If you’re buying $10 in Netflix every two weeks, you can eventually carve out a terrific position in the business.


Berkshire Hathaway (Class B), Target, Domino’s, and Nutrien are costly stocks, but they would be great securities for building a well-balanced portfolio. So, you may not have the funds to buy at least one share in all these firms, but you can begin constructing a diversified portfolio by acquiring $10 worth of positions in each of these stocks.

While you are still prone to risk and losses even when you invest in increments, buying stocks and other types of investments is instrumental to finances.

Cons of Investing in Fractional Shares

No Planning

Oftentimes, when you are looking to start trading, you can get excited, thinking of turning $1 into $1,000 overnight. The chief problem with fractional share investing is that neophyte traders will buy a whole host of companies without a plan, treating it as an all-you-can-eat buffet. This is reckless and can impact your money in a negative way.

Risk of Bad Stock Investments

In the last couple of years, market analysts have realized that fractional shares, especially for large-cap stocks, can inflate prices because of the influx of retail investors. So, without due diligence and monitoring market trends, the inflated price could manipulate novice traders.

Lack of Dividends

In the end, since you do not own a full share in a company, the dividends component becomes tricky. In many cases, because you do not have one share in your possession, you might not receive a dividend. In fact, your broker may get that monthly or quarterly dividend.

How to Invest in Fractional Shares

Many brokerage account services offer their clients access to fractional shares, such as AvaTrade, TD Ameritrade, Robinhood, and other popular platforms on our list of the best stock brokers. All you need is a client account and to deposit funds, and you can get started.

Just remember a few things:

  • Have a plan, do not trade aimlessly
  • Use fractional shares as a learning opportunity
  • Stick to only a handful of securities
  • Never chase stocks that are exploding

Are Fractional Shares Worth Your Investment?

Overall, investing in fractional shares is worth it when you have limited funds and you are still learning about how the stock market works, such as day trading, shorting, or index investing—but it might not necessarily be an efficient strategy when you are investing for your pension or deciding on suitable investment options as a senior citizen.

Anyone can get in on the stock market nowadays, be it a 19-year-old college student or a 31-year-old who just landed a full-time possession—having skin in the game is far superior to demo trading since the latter can often be treated like a video game and you go scorched-earth on the entire equities arena.

It is true that there are some drawbacks of fractional shares versus whole shares, but it is generally safe to agree that fractional shares are worth consideration.

Need more help? Take a look at our investing principles to follow as a beginner.

How to Move Your 401(k) to Gold (Without Penalty)

The 401(k) is a retirement plan that more than half of US employers offer to their employees, providing tax advantages to savers—highly advantageous to those planning for retirement. Its unusual name refers to the tax code by which it is governed. The way that the 401(k) plan works is that the employee agrees to have a portion of their paycheck automatically invested into their savings account each month. Then, the employer can agree to match that contribution in full or, in some cases, only sponsor a part of the employee’s investments.

There are two types of 401(k): traditional and Roth.

With the traditional 401(k), the savers contribute to their savings pre-tax and reduce the taxable income at the drawback of having their withdrawals taxed. The Roth 401(k) is the other way around—the employees contribute to their plans with after-tax income, but their withdrawals are tax-free.

Is It Possible to Move 401(k) To Gold Without Penalty?

While the 401(k) retirement plan is one of the better investment options for senior citizens, converting savings to gold is also a safe option. Inflation and interest rates affect the value of money, but these are not factors influencing the price of gold.

Moving the 401(k) to gold without penalty is only an option for employees who no longer work for the company that contributed to their plan. The 401(k) plans that are still active and receive contributions can not take advantage of the free-of-charge 401(k) to gold IRA rollover.

In other words, only plans sponsored by previous employers can be used to convert your 401(k) to gold. It is important to note that the IRS allows this kind of conversation without penalties only one time per year. Still, it is a great opportunity for savers that want to move to gold without tax consequences.

In some instances, employers offer a 401(k) plan with an option that allows employees to purchase individual securities. When this is the case, savers can choose to invest in precious metals like gold. Employees that don’t have this choice have to use previous accounts or look for a new job with better benefits.

How Do You Move a 401(k) Into Gold Without Penalty?

The IRS recognizes an important distinction regarding a transfer or rollover of retirement accounts. In transfers, the saver withdraws the funds from one account and then deposits them into another—see our list of the best gold brokers for specific account options.

In rollovers, the funds are being moved from the 401(k) account to a gold IRA trustee, without the investor ever making a withdrawal. If this sounds a bit complicated, consider learning more about how to invest in your pension fund.

The IRS allows 60 days for any funds to be distributed to a tax-free advantaged account. If the money is not moved within this period, it will be treated as regular income subject to taxation. This makes the solution on how to move 401(k) to gold without penalty pretty straightforward.

You can either move the funds you want to invest in gold within 60 days or take advantage of the 401(k) rollover to gold with an IRA. Of course, the rollover is always the better option as there is no risk of triggering the 60-day rule.

Is It a Good Idea to Move Your 401(k) Into Gold?

Like any other investment, there are pros and cons to moving your 401(k) to gold:


  • Allows for the purchase of physical gold—a tangible asset—by using tax-advantaged funds
  • In addition to stocks and bonds, investing in gold will be a great step toward building a well-balanced retirement portfolio
  • Considered an inflation hedge, a term used to describe the protection of value in assets from inflation
  • Provides the investors the opportunity to choose if they want to make distributions using money or gold
  • The capital gains you get from moving your 401(k) into gold are taxed as regular income and avoid the 28% collectibles rate
  • Unlike other assets (stocks & ETFs), where knowing the best ETF investment strategies and planning is required, gold doesn’t require any market knowledge


  • If you already own gold, it will not be moved into your IRA—you have to invest and purchase new gold
  • There are fees associated with buying, selling, and storing gold


To sum it all up, moving your 401(k) into gold could be an excellent way to diversify your portfolio, more so than simply maxing out your 401(k). Additionally, it can protect against inflation, interest rates, and other economic factors that might reduce the value of your assets. However, for many people, the disadvantages of moving into gold outweigh the benefits, so you may want to reconsider it and look at different options, especially when investing as a beginner.

IRA Investments Options to Maximize Your Retirement Savings

Are you thinking about retirement?

As soon as you get your first job, the first thought that should come to mind is opening an individual retirement account (IRA). Of course, as you get older and earn more, it is critical to try to maximize your IRA contributions.

In the United States, an IRA functions as a tax-deferred investment account that offers tax advantages when you invest in stocks, bonds, mutual funds, and a panoply of other investment vehicles.

So, what is involved in getting an IRA anyway?

How Does an IRA Work?

Knowing how to invest in an IRA can be tricky for many first-time investors who are finally earning a steady paycheck and ready to begin storing their nuts for winter.

The first step you need to take is to determine where you want to open your IRA. Do you want to establish an IRA at your local bank or use it for a regular brokerage account?

The next is to choose your IRA account type (traditional, Roth, SEP, or self-directed) and then officially open it. Finally, make your contributions, be it a lump sum or an automated deposit. Remember, be sure you know your maximum limits to avoid penalization. It is important to check on these recordkeeping accounts regularly.

As a side note, it’s vital that you understand how much you need to save for retirement.

Different Types of IRA Investment Options

The IRA is a tax-advantaged way to invest, whether you are deploying self-directed IRA alternative investments or utilizing traditional and Roth accounts.

Here are the four main types of IRA investment options:

1. Traditional

The traditional IRA continues to be the go-to retirement savings account for millions of Americans.

Here’s how it works:

  • An upfront tax break of up to $6,000
  • An additional $1,000 catch-up contribution for people 50 and older
  • All capital gains are not taxed if they remain in the account
  • Withdrawals in your retirement are taxed at the tax rate

2. Roth

A Roth IRA also maintains a different breed of tax benefits, but the structure is a bit different from the more conventional IRA.

Here is a look at its primary features:

  • No upfront tax break, but withdrawals in retirement are tax-free
  • The maximum contribution limit is $6,000
  • Eligibility will depend on your income (under $140,000 for single filers and under $144,000 for couples)
  • Early withdrawals are tax-free and penalty-free

3. Simplified Employee Pension (SEP)

If you are a business owner, an SEP retirement savings account is for you because it allows employers to contribute to traditional IRAs established for employees. This is also beneficial for self-employed individuals.

These are some of the SEP components:

  • Eligibility for businesses of any size
  • Employers must contribute to all employee accounts
  • Contribution amount will vary based on the company’s cash flow
  • Catch-up contributions for workers over 50 are not permitted
  • Annual contribution limits are higher than other IRA vehicles ($61,000 in 2022, for example)


The Savings Incentive Match Plan for Employees, or SIMPLE, is comparable to an employer-sponsored 401(k) and designed for small businesses and self-employed professionals. It is similar to the SEP IRA, with the main difference being that employees can contribute to their accounts through salary deferral.

Here are a few of the other features of a SIMPLE account:

  • Contribution limits are lower than 401(k)s ($14,000 in 2022, for example)
  • Employers are mandated to match contributions by 3%
  • Employees are required to earn at least $5,000
  • Your catch-up contribution limit is $3,000 if you’re over 50
  • Early withdrawals will be subject to a 25% penalty

Why Should You Invest in Alternative Assets?

In a highly volatile market that not everyone can comprehend, some investors are looking to alternative assets—some are even considering moving their 401(k) accounts to gold. An alternative asset is something that does not fit into traditional equity, cash, and income categories. Examples include property, commodities, venture capital, tangible assets, sustainable investments, and hedge funds.

For years, alternative assets had been available only to institutional investors. Today, however, the so-called democratization of the financial markets has allowed retail investors to partake in alternative funds.

But is this something you should consider?

While higher fees and tax implications may be the top downsides of this strategy, alternative investments could be suitable for you and your portfolio if you are resourceful and maintain expert knowledge of a particular industry.

Best Investment Options to Maximize Your IRA

In an inflationary environment where the cost of living is soaring and wages are being eaten away by higher prices, it can be challenging to maximize your IRA. So, how can you join the more than five million taxpayers who have maxed out their retirement plans?

Here are a few basic beginner investor principles to keep in mind:

The Earlier, the Better

The earlier you start, the more money you will accumulate over the next year, especially when you consider compound interest and dividends.

Asset Allocation

If you are active in your investment portfolio, you might need to engage in routine asset allocation to adapt to the changing market landscape (swap more stocks for bonds, for example).

A Mutual Fund

While mutual funds are going out of style in favor of the best ETF investment strategies, they still serve a purpose because they are great tools for passive investors.


Be it value or growth stocks, if you know how to read the financial markets, buying individual stocks can be a terrific mechanism to max out your IRA by the end of the tax year. Just take a look at our list of the best stock brokers.

Strategies to Manage Your IRA

Ultimately, if you wish to take advantage of the plethora of benefits associated with having an IRA, you need to employ the best investment strategies for your pension. This could consist of monitoring your portfolio, not waiting until tax day to contribute, and even naming a beneficiary so the recipient will not pay egregious fees. You could even use a robo-advisor to act as a guardian over your nest egg and participate in building a well-balanced portfolio.

In today’s environment, you do not want to abandon your IRA. You want to keep tabs on your retirement savings if you plan to retire comfortably.

Investing Principles You Should Follow as a Beginner

Investing has become available to everyone today. As long as you have capital, you can invest from anywhere in any market through the power of the internet. However, good investment returns are not easy to get.

As a beginner or even intermediate investor, it’s crucial to stick to basic and strict principles of investments. Many successful investors have proven time and time again that there are no hacks or shortcuts to investing. Building wealth requires time, research, and sticking to good investing principles.

Below, we’ve listed and described the best investing principles a beginner should follow. Continue reading to learn more.

Understand That Investing Is a Long-Term Commitment

In most cases, investing requires a lot of patience and time. Unless you’re one of the lucky few that bought crypto at its all-time low, you’ll have to wait for slow and stable returns. This means allocating as much money as you can afford toward investing each month, building a well-balanced retirement portfolio, and reinvesting all profits.

Whether you’re saving for when your working days are over and looking to retire comfortably, or you’re investing because you want to buy a house, the same principles apply.

Know Your Risk Tolerance and Investing Accordingly

Everyone has a different risk tolerance that depends on many factors, like age, spending habits, whether or not you have a family, unpaid loans, and how much you’re ready to risk psychologically. You should also keep in mind and calculate how much you need to save for retirement. You don’t want to spend most of your years being stingy only to have too much money for retirement.

You might consider yourself as someone with high risk tolerance. In that case, you can afford to have up to 80% of your portfolio in high-risk instruments, like growth stocks, crypto, and penny stocks. In the end, the key is to set realistic goals and stick to them. Also, if you’re close to retirement, consider looking at the best investment strategies for your pension fund.

You could, however, be someone with a weak stomach for risk. In this case, investing in safe assets with stable returns is the right thing to do. This means sticking to things that have proven to be profitable time and again (stable index funds like Vanguard’s S&P 500 Index and iShares All-World Index) or dividend stocks that have been around for many years (Coca-Cola, McDonald’s, Phillips, Apple, etc.).

Additionally, you could consider utilizing a strategy that allocates different investment amounts to different risk tolerances, like a retirement bucket strategy.

Diversify as Much as Possible

Every experienced investor will tell you that diversification has helped them a lot through the years. So, what is diversification? Diversification is when you have plenty of different assets and asset classes in your portfolio.

Let’s take the following example of a diversified portfolio:

You might ask what the point of having so many different assets and asset classes in your portfolio is when you could just stick to one. Well, history has proven time and time again that diversification is the most stable and safest investment approach one can take—this is where the term, “don’t put all your eggs in one basket,” comes from.

How would this apply in a real-world situation? In a bear market, for example, tech stocks and ETFs have been historically losing a significant portion of their value (sometimes corrections of up to 30%). On the other hand, bonds offer great returns in a recession or just a bear market, while the crypto in the portfolio is here to expose you to an entirely new technology that has been exploding in price year after year. The precious metals in the portfolio serve as a natural hedge against inflation, while the dividend ETFs give you a regular income.

Make Sure to Reinvest Your Earnings

When the assets you’ve invested in yield profits, you can either withdraw to get quick cash, or you can reinvest them and enjoy massive long-term benefits. If you’ve invested $10,000 in the S&P 500, and it gives you a 10% rate of return this year, you will have a total of $11,000. You could take that $1,000 and spend it, or you could buy more shares and get an even bigger return in the next cycle.

In this scenario, if the S&P 500 returns 10% again the following year (which is the index’s average yearly return), you’ll have a return of $1,100. Now, you might think that $100 is not a big difference—which it isn’t. However, as time passes, the effect of compound interest drastically increases your wealth to a point you didn’t think was possible. So, make sure to reinvest as much as possible and reap the benefits investing has to offer.

Safe and High-Return Investments for Beginners

The safest way a beginner can start investing is with reputable stocks or ETFs. Regarding stocks, you can go with big tech giants or stocks from the food industry:

  • Microsoft
  • Apple
  • Samsung
  • Coca-Cola
  • McDonald’s
  • Starbucks

On the other hand, if you don’t want to manually diversify your portfolio and would like to leave the task of maximizing your retirement savings to financial experts, then ETFs like the following are the best choice for you:

  • Vanguard’s S&P 500 Index ETF
  • Vanguard All-World UCITS ETF
  • iShares Global Clean Energy ETF

Retirement Bucket Strategy: What It Is and How It Works

Despite current economic conditions, most Americans remain optimistic about retirement. According to a study by the Employee Benefit Research Institute, 7 in 10 workers report being “somewhat confident” about their retirement, with another 8 in 10 noting that they will have enough money for their winter years.

Despite this surprising confidence, many are still worried about the future because of rampant price inflation and the soaring cost of living that has hit every area of the economy. Does anyone know how much to save for retirement anymore?

This is why it is critical to invest in retirement. You never know what the economy—and the future—will have in store for your retired years. You need to possess various sources of income and capital to cover your bases and ensure you can withstand the inevitable developments that will happen. Be it saving for a rainy day or bucket investing; there are many things you can do now to ensure a better tomorrow.

What Is the Retirement Bucket Strategy?

Sure, you have a bucket list for things you want to do in your golden years, but there is also the retirement bucket strategy—also known as a 3 bucket strategy. This is when you segregate your money into three buckets—short-, medium-, and long-term—that can help manage your capital better.

A cash bucket for each period can support you during any phase of your retirement and any unforeseen circumstance in the financial markets. For example, if you notice a dip while analyzing stock market trends, you do not need to sell during a market correction to cover your day-to-day costs.

The bucket mechanism is one of the best investment strategies for your pension or your retirement portfolio.

The idea is not so much to withdraw, but to save and invest in order to grow your available funds. Therefore, when you do withdraw, you are not using everything and emptying your accounts. Put simply, you are tapping into different income streams.

The Three Different Buckets

So, you understand what a retirement bucket strategy is now. Here is how the three different retirement buckets work when you know how to retire comfortably:


This includes investment funds with a target of one to three years that will be parked in low-risk, fixed-income securities. The goal is to have one or two years’ worth of income in this fund that you can start withdrawing at a rate of two to four percent.


This includes money invested in specific exchange-traded funds (ETFs) and mutual funds that will not be touched until the short-term basket has been exhausted. This bucket should generate an income through a blend of real estate investment trusts (REITs), utility stocks, growth and value funds, and bonds (corporate and government).


This is a treasure chest of gold and silver that will only be opened when everything else has been consumed. The long-term bucket is the motherlode of your investments that might seem risky but pay off when you need it the most. When you are building a well-balanced retirement portfolio, this is the bucket that needs the most attention.

Advantages of the Retirement Bucket Strategy

Less Panic

The COVID-induced market selloff in 2020 was completely irrational. It did not make any sense, but everyone hit the panic button anyway. A bucket strategy can help you control your emotions in any environment, especially when Wall Street is suffering pandemonium.


What is great about the retirement bucket strategy is that you have plenty of diversification, removing the guesswork and broader volatility. From bonds to stocks to investment funds, your overall retirement portfolio has many investment vehicles.

Continuously Growing Your Money

Rather than having one giant pot of money that is sitting there collecting dust, you have three different buckets that are continuing to grow throughout your senior days.

Disadvantages of the Retirement Bucket Strategy

Too Conservative

Let’s face it: it can be hard to determine how much to hold in each of these buckets. Indeed, too much money in your short-term bucket could threaten more gains in your long-term bucket.


The chief problem with the retirement bucket strategy is that there is no specific advice for rebalancing during the bullish and bearish periods.

Maxing Out Your 401(k) in 2022: Should You Do It?

The 401(k) is the most popular retirement plan for employees, and for good reasons. It offers plenty of benefits, like tax-free contributions that will build your account for retirement, as well as employer-match programs. The plan allows you to take advantage of truly lasting benefits, giving you the option to set aside funds, letting you slowly build wealth over time.

So, what is a maxed-out 401(k)? A maxed-out 401(k) retirement plan is when you play the biggest possible sum—i.e., max out 401(k) contribution, which is limited to $19,500. If you’re at least 50 years old, you can contribute a total of $26,000, which is one of the best options for investing for your pension fund.

That being said, let’s cover what maxing out for 401k offers you and whether or not you should do it (whether it’s with or without catch-up contributions).

Benefits of Maxing Out Your 401(k)

There are multiple reasons why one should consider maxing out their 401(k), such as the following:

Accelerates Wealth Building for Retirement

If you can contribute the maximum of $19,500 per year (or $26,000 if you’re above 50), it gives you a significant edge over your peers, guaranteeing that you save much more quickly for retirement. A maxed-out 401(k) allows you to make the most of your working days and helps you reach your retirement goals faster. The same holds true for both traditional and Roth accounts, which both help toward building a well-balanced retirement portfolio.

You Pay a Lot Less in Taxes Over the Years

When you contribute to your 401(k) retirement account, the money gets deducted from your paycheck at the beginning of each month—before income taxes come into the picture. Depending on which tax bracket you belong in, you could save anywhere between $4,000 to $7,000 annually on taxes—or you can double your tax savings if you and your spouse both max out your 401(k) on your year-to-date contributions, which is a solid amount if you’re looking to retire comfortably.

You Give Compounding a Chance to Do the Work for You

We’ve all seen the charts: a couple thousand dollars invested more monthly leads to a much bigger return than what you would’ve otherwise invested. This is all thanks to compound interest. The 401(k) averages a tax-free return of 3-8% per year. Investing, for example, $5,000 more annually leads to up to $400 more in returns. This number only grows as time passes, thanks to compound interest, making it an amazing retirement savings option. This opens a new question: how much to save for retirement, which you can calculate depending on your needs and spending.

Disadvantages of Maxing Out Your 401(k)

Although having much more money saved up for retirement is promising in and of itself, it also has certain drawbacks.

Your Spending Ability Will Decrease

Since you’ll be contributing much more money to your 401(k) than previously, you must limit your spending. If you’ve been contributing $10,000 yearly, and you’re looking to bring that number up to $19,500 (which is almost double), you’ll have to pay closer attention to your spending and try to monitor it. You should also consider having an emergency fund, as your overall liquidity will also decrease.

You’ll Have a Harder Time Paying Back Debt

If you focus on paying out your 401(k) first, you might start neglecting the debt you have. Whether you’ve taken out a loan or you have credit card debt, paying out high-interest loans should be higher on your priority list than maxing out your retirement plan. Considering that the average credit card loan is around 15%, the money you’ll be losing will compound much faster than what you’ll be earning from maxing out your 401(k).

You Could Place Your Money in Illiquid Assets

Since you’re maxing out your retirement account, a relatively big percentage of the money you put in will probably end up in illiquid assets—assets that you can’t profit from unless you pay a considerable tax. Regarding solving illiquidity, you shouldn’t neglect your emergency fund, which is the money you need to access in case things ever go south. If you don’t want your money to be idle, consider putting your money in a mutual fund—but one from which you can quickly withdraw the cash, in case you need it. Check out some of the best ETF investment strategies and choose one that fits your needs well. We also have a convenient list of the leading ETF trading brokers to help you get started.

How to Max Out Your 401(k)

If you decide on it, maxing out 401k is a relatively easy thing to do, as long as you have the $19,500 ready to invest each year. However, we would first recommend fulfilling the following criteria before you decide to max out your 401(k) contributions:

Once you’ve got the all the criteria we mentioned above fulfilled, consider doing the following steps to max out 401(k):

    1. Fund your account and minimize fees
    2. Set up a max-out 401 calculator, and calculate the approximate contributions you’re ready to make
    3. After calculating, set up a goal—the specific amount you’ll invest each year
    4. Select low-cost funds (like ETFs with low management fees)
    5. Avoid penalties (you can avoid them by not withdrawing money too soon)
  • Stick to your goals and pay the amount you have in mind each year until retirement

Tips and Strategies for Investing Your 401(k)

In the US, 41 percent of workers contribute to a 401(k) plan, according to recent data from the Census Bureau. Experts say that this low number is due to more than two-thirds of Americans having access to employer-sponsored plans.

But what exactly is a 401(k) plan?

Put simply, it is a retirement savings and investing plan that employers offer their employees, many of whom also receive a tax break on the funds they contribute. It is a safe and easy way to put money away for your winter years, but there are some things you need to know. Read on to learn more.

Factors to Consider Before Investing Your 401(k)

Despite its simplicity, there are many components that you need to be aware of before you begin investing in this retirement plan.

Tax Break

Workers will add pre-tax money from their salaries, lowering their taxable income and cutting their tax bills. So, for instance, if you make $2,000 per month and save $100 each month, only $1,900 will be subject to tax. In addition, the funds in your 401(k) will expand tax-free.

Contribution Limits

Like nearly every other retirement savings plan, 401(k)s have a contribution limit. For instance, in the 2022 tax year, the maximum amount was $19,500. Plus, Americans over 50 can add an extra $6,500 in catch-up contributions.

Automatic Enrollment

It is estimated that 69 percent of businesses automatically enroll employees into their 401(k) plans, giving workers the option of exiting the program if they wish. For the most part, the immediate contribution rate is about 3 percent.

Company Match

Many employers will match your contributions up to a specific percentage. The amount will vary by each company, be it 25 cents for every dollar you contribute up to three percent of your income.


Unfortunately, there are fees associated with 401(k). These fees vary between 0.5 percent and two percent of the plan’s assets.

Types of 401(k) Investments

Workers have many different 401(k) investment options to choose from, making it comparable to an individual retirement account (IRA). This means 401(k) stocks, bonds, and other securities can be added to your overall plan.

Here is a list of what you can do with your 401(k):

  • Individual stocks
  • Bonds
  • Mutual Funds
  • Exchange-traded funds (ETFs)
  • Company stock
  • Annuities (hybrid insurance that combines mutual funds and insurance protections)

Best 401(k) Investment Strategies

Any person beginning their investment journey or trying to play catch-up will inevitably ask a financial expert how they should invest their 401(k). Of course, everyone’s personal finances are different, so a 401(k) investment strategy may differ. There is no one-size-fits-all tactic in place because you might need to factor in age, income, financial goals, health, and other topics.

Company Match

If your employer is offering a company match, whether 25 percent or 100 percent, you should take it! Of course, many businesses will only do the full match if you stay with the firm for several years. This is a great incentive to take advantage of and is one of the best investment strategies for your pension.

Act Now

Many 401(k) contributors will wait until the end of the year—if at all!—to start adding more to their retirement accounts. But when you know how to retire comfortably, you start saving as soon as possible, even if you are unaware of how much to save for retirement.

Invest In Your Time

If you are a professional in your twenties contributing to a 401(k), you have a lot more time until you access your retirement account. Therefore, you can be a bit more conservative when building a well-balanced retirement portfolio. However, if you are approaching your winter years and have fallen behind on your contributions, you might need to be more aggressive.

To Adjust or Not to Adjust

It is crucial to adapt to the changing environment in this chaotic market. You could regularly buy shares in the Vanguard Total Stock Market Index Fund ETF or Vanguard 500 Index Fund ETF and dollar-cost average (DCA) your way to retirement. However, passive investing might not be such a wise idea anymore, so you might need to be a bit more active in your 401(k) investment strategy.

Whatever 401(k) investment strategy you employ, you can take solace in the fact that you have initiated your retirement journey now.