Where should you invest?

Whether youre just getting started, or you are about to retire, your company 401K is likely the best place to be investing.

This may seem obvious, but there is somewhat of an undercurrent philosophy that says the 401K isnt where you should be preparing for retirement. For a new investor, this can seem confusing and can lead to analysis paralysis.

The 401K certainly has its downside: fewer investment options, single tax strategy (deferring), married to your job, among others. But I think none of these knock it off of the top spot as the best place to invest your money. Heres several reasons why.

The Choices are Limited To some this is certainly a negative. I understand. But not enough people are investing. One of the main reasons: too many choices. People are afraid to get started investing because they think they will choose the wrong funds or investments. 401K administrators usually narrow the choices down for you, and I contend this is one of the reasons why the 401K enjoys such high participation rates vs outside plans.

The Large 401K Annual Limit In 2011 you can contribute $16,500 of tax-deferred dollars to your 401K. Thats head and shoulders above the measly $5,000 that the Roth IRA offers. By investing in the 401K, you lessen the chance that youll reach your maximum.

No Income Limits Unlike other tax-advantaged retirement accounts, the 401K has no limitation on the income you can make and still participate. Even your rich CEO can put his $16,500 in the 401K. No matter what you make, youll never have to give up contributing to this account.

You Can Usually Get Free Investment Advice If your HR department played their cards right, they secured education and advisory service from your plan administrator. Whether it be online information or classroom education, you can freely tap into this resource when you invest with a 401K.

The Focus is On Funds Most 401Ks dont come with the ability to trade in single stocks. They offer broad funds so that your risk is spread across many investment types and asset classes. Like limiting choice, I understand how some could view this as a bad thing. But for the average investor, this is what they need. Give people control, but not too much control such that theyll wreck themselves.

You are Automatically Enrolled Most companies nowadays will just get you going with your 401K when you are hired. So, unless you go out of your way to opt out, youre in. Getting started is the hardest part of investing. Once youre doing it, its easy to keep going and to get better at it.

Paying Yourself First is a Snap Finally, once you are enrolled, the 401K contributions are automatically taken out of your paycheck before it hits your bank. You are paying yourself first, and then youre free to spend the rest. I love it. I wish all investing was so easy.

The wonderful thing about the 401K is that you dont have to stop there. Start with a 401K with work o get your employer match, and then, if you qualify, start investing with a Roth IRA versus the 401K. You can do both.

Anyway, thats why I love the 401K. What do you think about it?

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