Does your employer offer a 401k plan to help save for retirement? While your plan options may be limited within your 401k, there are plenty of things you can do to maximize how your money is invested and how your money grows. Follow these 401k investing strategies and you'll be miles ahead of the norm when it comes to planning and saving for retirement.

Ten 401k Investment Tips TO Maximize Your Savings Growth

You might feel like your options are too limited within your 401k to make much of a difference, but the truth is there are actually a lot of things you can do to maximize your 401k savings growth. These 10 investing strategies will help you lower fees, accelerate your savings, simplify your investments and put you on a sure path to a successful retirement nest egg.

1. Start Early

A while ago I worked for a small startup. They offered great benefits, including a 401k plan. Upon being on-boarded to the company, I elected to begin having portions of my paycheck contributed to a 401k. The HR consultant was so surprised that I started doing this from day one because no one ever did that. She said that everyone just waited until at least 6 months when the company would automatically contribute 5% of your salary for you. This blew my mind!

Aren't we all here working so that someday we can retire? Then, why wouldn't we begin contributing to that day when we retire from day one?! Beats me!

Furthermore, the earlier you start the larger your long-term growth will be. It's called compound interest, and it's often referred to as the 8th wonder of the world (and for good reason). It means that after year one, say you get 10% return on your money. Then year two, you get 10% on top of the starting balance of year two, which includes your contributed principle plus year one's interest.

In other words, you get interest upon interest upon interest, and over the years your portfolio has grown by amounts that are more than your original contributions! Suffice it to say that starting early cannot be emphasized enough.

2. Take Advantage of Company Matching

You may have noted that when I worked at this startup, they had a program that automatically began contributing to our 401k in the amount of 5% of our annual salary, and this was in addition to our actual salary.

Companies today have reasons to offer their employees retirement benefits including a 401k, and in order to get more people contribute to a 401k they often have a matching program, or a contribution program similar to the one at the startup I worked at. The 401k match usually amounts to match dollar for dollar the amount you contribute, or match 50% of the amount you contribute.

So, if you contribute $100 per paycheck, the company would contribute an additional $100 if they matched dollar for dollar, or an additional $50 if they matched 50% of your contributions. It's free money, take advantage of it!

3. Regularly Increase Your Contributions

Once you have the habit of contributing to your 401k regularly, a strategy that will aid you in saving for retirement is to increase your 401k contributions each year by a predetermined amount, say 5% for example.

Why? If you're like most people, we don't have money growing on trees in our backyard and have bills to pay. Thus, you contribute what you can at first. But adding a regular increase of even just 5% each year is enough to boost your retirement savings a lot over the long run, and it's an amount that you will hardly feel in your budget.

If you're contributing $100 per check, now you will contribute $105 per paycheck. If you're contributing $1,000 per paycheck, now you're contributing $1,050 per paycheck. Small changes over the long term make a big difference in the end and can add up to be hundreds of thousands of extra savings for retirement.

4. Allocate A Portion of Your Pay Raises to Your 401k

It's tempting to increase your style of living when that pay raise comes. The trick is to make the decision now before the day of your pay raise. If you can commit to contributing 25% of your raise or even 50% of your pay raise to your 401k, and allow the rest to be for you and your family, you will be happy to know that your retirement savings will be substantial to say the least.

5. Compare Investment Fund Fees

Available investments in your 401k are limited to a few funds approved by your plan provider. Hiding within the fine print are the fees associated with each of the available investment funds. Although you may not notice much of a difference initially in choosing the funds with lower fees, over a long term of investing for retirement those fees can add up to be a lot of missed out growth opportunity.

Before investing, simply compare the fees of each fund and make sure they align with your comfort and investment objectives.

6. Keep Your Investments Simple

You might think that if you allocate your investments across all the funds available, you're diversifying your portfolio to limit loss and maximize returns. However, keep in mind that each fund is already spread across hundreds of companies and industries. There is such thing as over-diversification and investing a little into every fund offered is a great example of it.

Pick just three to five funds that meet your risk tolerance and investment goals and stick to those. Each of those funds will be comprised of many companies, so diversification is built in by default. Why? Because it keeps things simple, it avoids over-diversification (which can eat at your potential growth believe it or not), and it can lower your overall fees as well.

7. Roth vs Traditional 401k

Very few people know their 401k plan has both the option to invest in a Roth 401k and a Traditional 401k. With a Roth 401k, your contributions are made AFTER you've paid taxes on the contributed money. With a Traditional 401k, your contributions are made BEFORE you've paid taxes on the contributed money.

Make sure you know what your plan offers and choose the account that meets your needs. If you're looking to lower your taxable income, contributing to a traditional 401k allows you to deduct contributions from your taxes. If you want to get taxes paid and over with so you don't have to worry about them in retirement, then contributing to a Roth is the way to go.

If you ask me, I always advise on contributing to a Roth whenever possible because once retirement hits, taxes become your worst nightmare (more so than they already are now).

8. Understand Your Different Fund Options

Most 401k plans offer between 10 – 20 different funds, sometimes slightly more. Most of the options are either mutual funds or exchange traded funds. If you're not sure what the differences are between the two types of funds, read more about the difference between mutual funds and ETFs here.

Each fund will have an investment objective or track a common stock market index such as the S&P 500 or Russell 2000. The most common different fund options will be:

  • Growth Funds: A fund comprised of companies with major growth potential.
  • Value Funds: A fund comprised of companies that are believed to be undervalued in price.
  • Index Funds: A fund that mimics a common stock market index such as the S&P 500 or Russell 2000.
  • Target Retirement Date Funds: Funds that are allocated between stocks and bonds based on how many years you have until retirement. The close you are to retirement, the more conservative the investments will be, and the farther from retirement you are, the more aggressive your investments will be.

9. Seek Advice When Needed

There are those out there that wish to delegate all the planning and management to a professional and want nothing to do with all this investment jargon and mumbo-jumbo.

Most company benefit plans that offer a 401k will give you access to professional help as part of the plan's benefits. Sometimes it may cost an additional fee, others it comes free.

A universal option is to work with a company called Blooom, who focuses on helping you maximize your 401k investments, planning, fees, and growth. They only work with 401k plans regardless of your 401k provider, and thus they are specialists at what they do for a very small fee.

10. Always Rollover Your 401k When You Change Jobs

Perhaps one of the biggest mistakes people make is forgetting about their former employer sponsored 401k, yet to forget they ever had it years later. Rolling over your 401k is much easier than it sounds and can be done totally online in most cases. Without getting into the details of how to do it, simply call your plan provider and tell them you wish to rollover your account, and they will take care of the rest.

The easiest option is to rollover your account into a Roth or Traditional IRA. That way, each time you change jobs, you just rollover your retirement funds into your IRA and watch the balance grow over time!