What to Do if Your 401(k) is Underperforming
Saving enough to finance your entire retirement requires a major commitment of your disposable income, so it's no easy task. Forunately, you can put your money into investments that will generate more money for you, thereby reducing the amount you need to squeeze out of your paycheck. But if you're not getting good returns on your retirement investments, you're missing out on that advantage and selling your future short.
Let's say you plug some numbers into a retirement calculator and decide that you need $1 million to finance your retirement. That doesn't mean you have to personally contribute $1 million to a retirement; it means you have to save enough so that the money will turn into $1 million by the time you're ready to retire. Once you factor in the return on your investments and your employer's matching 401(k) contributions, you'll probably find you only need to save a fraction of $1 million -- especially if you start early.
That's largely because of the power of compounding: As your investments grow in value, you'll own an ever-larger share of each one, which means you'll reap an ever-growing share of future gains. The longer your money is invested, the more this effect snowballs. Naturally, the higher the returns you get from your investments, the faster they'll compound. That's why it's crucial to keep an eye on your 401(k) and IRA investments and make sure they're giving you decent returns.
Source: Fool.com
