Making the Most of Your 401(k)

Accounting Technology,  October, 2005  by Doug Charney

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Everything in life involves risk, and investing for retirement is certainly no exception. Knowing how much risk you're comfortable with can go a long way to preventing sleepless nights and uncertainty during volatile markets.

Debt Free

First, pay off high-cost debt. Let's say you're carrying $1,000 of debt on a credit card that charges 1.5 percent a month on the outstanding balance. Meanwhile, you get a $ 1,000 bonus. Should you use that bonus to pay off the credit card, or to invest in the 401(k)?

Pay off the credit card first. If you let that debt accumulate at 1.5 percent a month, at the end of a year it's $1,195.62-for an effective rate of return (to the lender) of 19.562 percent. Leaving it there for an additional year raises the debt to $1,429.50. And the interest is not deductible-you pay it with ...