I've grown my 401(k) balance by $100,000 in 3 years: Here is my best advice

"The best time to start investing is yesterday; the next best time is today."

Marie Coleman-Johns is the co-founder of Winenance.
Courtesy Marie Coleman-Johns

My sister and I run a platform dedicated to helping people achieve financial independence called Winenance. The idea was born out of our fraught relationship with money, growing up financially insecure and over time teaching ourselves how to make our money work  for us.

One of the biggest financial issues I've struggled with has been retirement planning. For most of my twenties, I barely contributed to my retirement savings. In my 30s, I turned that around and started investing in index funds and prioritizing my 401(k).

It was hard at first. I found it stressful to navigate provider websites and understand even basic investing terms. By the end of 2020, thanks to some key strategies, in three years I had grown my 401(k) balance by $100,000.

Here's what has worked for me.

I make consistent contributions with a goal in mind 

Reading about the FIRE (Financial Independence, Retire Early) movement, I learned how consistently contributing to employer-sponsored retirement accounts, such as a 401(k), 403(b), or 457(b), can help you build wealth

I started putting money towards my 401(k) in 2015. And from 2015 to the end of 2017, I leveraged my employer match, access to low-cost, broad-based index funds, and made consistent contributions to save an average of $15,000 per year.

My financial independence goal is to save $1.25 million. With that in mind, I've never dipped into my 401(k) to take out a loan or decreased my contributions to accommodate spending in another area. 

This practice has been a key component of my ability to grow wealth in my 401(k) and across my other investment accounts as well. 

I max out my contributions each year

In 2018, I started my job with my current employer, and for the first time, I was earning six figures. I made it a point to not level-up my lifestyle simply because my salary increased — a phenomenon known as lifestyle creep — and continued living on my previous salary. 

Having more money to put towards my savings, I was now able to "max out" my 401(k) contributions, and go up to the annual IRS limits each year.

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I wanted to be able to do this for a while, but between paying off student loans, getting married, having a car lease and a loan for my husband's truck, and saving for a house down payment, it just wasn't in the cards. Still, during this period, I contributed to a Roth IRA.

In 2018, having a little more in my paycheck allowed me to more comfortably cover those other financial goals and ultimately set me on the path to be officially debt-free, with the exception of my mortgage, by March 2020.

From 2018 to 2020 I contributed a total of $57,000 of my pre-tax salary to my 401(k). I was ultimately able to add $100,000 to my balance thanks to my investment growth and my employer match. 

I invest in low-fee, high-performance funds 

My current 401(k) contributions are primarily invested in a large-cap index fund that tracks the S&P 500. It is among the highest performing funds within my plan's investment options, and it has the lowest expense ratio (the fees you pay to invest in a fund). Because this fund tracks the top 500 performing companies in the nation, I don't worry about this fund underperforming the market. 

Everyone has a different risk tolerance. Being 95% invested in stocks works for me for a few reasons. I am 38 years old and I have time to ride out any dips in the market. I lived through 2001, 2008, and 2020. I have come to expect significant market downturns to come along at least once per decade. 

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I am fully diversified with the companies in the S&P 500. I'm not worried about one single company performing poorly, because I own all of the top performers. And while stocks are volatile, I understand that the stock market has never gone down and stayed down. It has always, eventually, gone back up.

Over the last few years, my investments have returned an average rate of 18.93% per year, or just over $23,000. This includes 2018, when the S&P 500 returned -6.24% that year. Ultimately, this all means that I am passively making money on my contributions and the amount my employer contributes to my plan. 

I take full advantage of my employer match

Every employer is different, but if yours does offer a 401(k) match and you're able to, I encourage you to take advantage of it. You don't want to leave free money on the table that belongs to you. 

When I max out my contributions, I get the 6% match my job offers, which accounts for nearly 20% of my 401(k)'s value. Remember that you earn interest on both your contributions and your employer contributions.

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I research what funds I'm invested in

I've found that understanding what you're invested in is just as important as making contributions. One of the biggest mistakes you can make is opting into something by default that won't help you build wealth. 

Many investors use target-date funds. These are funds that typically decrease in risk and performance the closer you get to your projected retirement year, but they can sometimes come with high fees. Sometimes your contributions may automatically default to a settlement account, which is also known as a money market account. Make sure you are choosing the fund that will create the most value.

Ultimately, my best advice is to run your numbers and put what you can into a 401(k) or other retirement account. The magic of compound interest over time will go a long way in helping you save for your future. The best time to start investing is yesterday; the next best time is today. 

Marie Coleman-Johns and her sister Stephanie Stockwell are the founders of Winenance, a personal finance education company. Through their podcast, The Winenance Show, YouTube videos, virtual and in-person workshops, and their online content, Marie and Stephanie teach working professionals how to maximize their employer benefits and investment options to grow wealth and build the life they deserve.

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