Investing can help you become a millionaire over time, even if you’re starting from scratch. Despite the incredible potential investing has to generate wealth, many people find it challenging to even get started investing. That’s a tragedy, because the one certainty in investing is that $0 compounded for any length of time will still wind up being $0, no matter how the market performs.
With that in mind, there is one investment that is, hands down, the first investment you should make if you have it available to you. That investment is to put enough money into your employer-sponsored retirement plan such as a 401(k) to get a matching contribution. Indeed, before you make any other investment, anywhere, you should at least be maxing out the contribution it takes to get every penny of employer match you’re eligible to receive.
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Why investing to get a match is such a compelling idea
First and foremost, a matching contribution from your employer generally acts like the highest guaranteed return on investment you’re likely to find anywhere. A typical match is 50% of your contribution, up to some percentage — often 6% — of your salary. So if you earn $40,000 a year and get a match like that, you can contribute up to $2,400 in your plan and see an additional $1,200 deposited by your boss on your behalf. That’s like a 50% return on your investment, just for putting in your own cash.
Second, your 401(k) or other employer-sponsored plan represents one of the easiest ways to start investing. Typically, all you need to do is fill out a few quick web forms at work, and then the money starts getting automatically invested directly from your paycheck with no additional intervention required. That easy sign-up and automatic execution makes 401(k) type plans an exceptionally powerful wealth building tool for those who take advantage of them.
In addition, qualified retirement plans like 401(k)s offer tax advantages. Money invested in the plan grows tax-deferred, making compounding very efficient over time. On top of that, in traditional style plans, you get a tax deduction for your contribution, while in Roth style plans, you can withdraw money tax-free in retirement.
As if all that didn’t provide enough reasons, many plans let you set up your contribution as a percentage of your salary. That’s helpful in figuring out how to maximize your match. It’s also helpful because it means your contribution will automatically increase every time you get a raise, unless you’re already contributing the maximum allowed.
Should you invest in your 401(k) beyond that match?
Speaking of the maximum allowed, in 2020, you’re generally allowed to contribute up to $19,500 if you’re under age 50 or $26,000 if you’re 50 or older . If you’re considered a highly compensated employee or if your plan has lower limits than those generally allowed levels, you may face lower limits.
Contributing enough to your 401(k) to maximize your match is a no-brainer and is hands down the first investment you should make if you have it available to you. Contributing beyond that level, however, is a bit of a priority call. Certainly, the simplicity of contributing straight from your paycheck is a huge plus for putting more money into your 401(k), and there’s nothing inherently wrong with contributing more to it. Still, you might be able to make better use of that money elsewhere.
For one thing, 401(k) plans tend to have limited investment choices and often have fees attached to them. If your plans choices aren’t the greatest or if you face a hefty fee based on your 401(k) account balance, you might want to contribute your next set of retirement dollars to an IRA, instead.
For another, if you’ve invested enough to get your maximum match before getting the rest of your financial house in order, you need to make getting that house in order critically important. The high return of a match stops mattering once the match is maxed out, making most debt pay down a priority that should certainly be very high on your list.
In addition, while saving for retirement should be your first major investment priority, it probably isn’t your only one. Once you’re on track with where you need to be to reach a financially comfortable retirement by a typical retirement age, you should start saving for your other priorities as well. When you save for those other priorities, it makes a ton of sense to do so outside of your 401(k) or other qualified retirement plan.
After all, one of the downsides to 401(k) type plans is that it can be very expensive to use that money before you reach retirement age . That makes it important to save and invest outside those plans for your other, non-retirement goals.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
