These days, you can do pretty much anything online. You can buy virtually any product or service on the web, including investment vehicles such as a 401k plan. But while investing in a 401k online has its advantages, it also comes with a number of pitfalls to avoid, so tread carefully!
The first thing to remember of course is that any investment involves a degree of risk. The value of any stock, even the most stable stock, can go down as well as up. So when planning for your retirement, you want to make sure that you invest wisely and choose the right stocks for your 401k fund.
The risk from online 401k investing does not just come from the stock prices however. There is a degree of anonymity with the web that unfortunately attracts scammers and con artists, who would just love to take your money off you. So if you are planning to hand over money to any company you find on the Internet, make sure you do your research first, both online and offline. Is it a reputable, regulated company? Where are its offices? Who are its customers? Don’t fall into the trap of investing your 401k with a company that seems legitimate but in actual fact is not.
On the other side of the coin, you don’t want to be too cautious when investing. Sure you can go for something like Guaranteed Investment Certificates (GICs), which are very safe investments, but the returns you are likely to get on your investment will probably be so poor as to be not worth it. You do want your money to grow after all.
Think carefully about how much money you want to invest into your 401k each month. You want to put enough in there so that the fund will grow to a nice enough level to keep you comfortable when you retire, but you don’t want to put so much in that you are leaving yourself short each month. And don’t forget, if you withdraw funds from your 401k before the age of 59, you will be heavily taxed because the money you were investing into the fund was pre-tax.
As long as you remember that you are saving for your retirement and not for that new car you wanted, you invest wisely and conservatively (but not too conservatively!) and you seek out a reputable firm to manage your 401k investments, you should be all set!