Company-sponsored 401 (k) plans (named after the section in the tax code that allows them) are widely used and are very popular. In a 401(k) plan, companies set aside money from their paychecks that the employees can use to invest for retirement. Generally, you can invest as much as $11,000 of pretax earned income and have it grow tax deferred. Usually, the money is in a mutual fund through a mutual fund company or an insurance firm.

Because your money is in a mutual fund that may invest in stocks, take an active role in finding out the mutual funds in which you're allowed to invest. Most plans allow you several types of stock mutual funds. Use your growing knowledge about stocks to make more informed choices about your 401(k) plan options.

Keep in mind that a mutual fund is only as good as what it invests in. Ask the plan administrator some questions about the funds and the types of stocks it invests in. Are the stocks defensive or cyclical? Are they large cap or small cap? If you don't make an informed choice about the investments in your plan, someone else will - someone who doesn't have as much interest in your financial success as you do.


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