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The Millionaire in the Next Cubicle

By Shannon Zimmerman - Updated Nov 11, 2016 at 4:55PM

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Does your coworker know something you don't?

For many -- if not most -- of us, the money we've socked away in our employer-sponsored retirement plan represents the biggest portion of our nest eggs. Trouble is, too few of us take maximum advantage of our plans. And even those who do take advantage of them might not be putting money to work in other investment vehicles that also provide tax-favored earnings growth.

Some folks, however -- perhaps even the coworker stationed in the next cube -- know exactly what it takes to get the job done.

Take the money and run
If your company matches retirement-plan contributions up to a certain level, make sure to kick in at least as much as they'll match.

Even if your firm's plan isn't the greatest in the world, it's hard to beat doubling your money while reducing your taxable income. And, of course, the deal is sweet indeed if you're among those lucky workers whose plan offers a cream-of-the-crop lineup of mutual funds. But what, exactly, constitutes one of those? Good question. Cheap price tags and seasoned management are key, as is intelligent diversification.

On that front, your plan should feature an anchor fund that specializes in stalwarts such as AT&T (NYSE:T), GE (NYSE:GE), and Johnson & Johnson (NYSE:JNJ) -- a power trio of companies whose price-to-earnings (P/E) ratios currently clock in below their five-year averages. It should also provide a fund whose managers look toward growth-oriented fare such as Genentech (NYSE:DNA) and Schlumberger (NYSE:SLB) -- stocks with robust earnings-growth estimates over the next five years. Qualcomm (NASDAQ:QCOM) and Gilead Sciences (NASDAQ:GILD) are similarly racy contenders for such funds.

The bottom line? If your plan keeps a lid on costs and provides vehicles that you can, um, drive across the market's valuation spectrum, then give your administrator props: He or she has provided a smart way to build a diversified portfolio.

Take it to the limit
Another smart way for retirement-minded workers (i.e., all of us) to proceed is with a Roth IRA. Provided you don't exceed the income limits, you can contribute to a Roth in addition to the moola you plunk down in your 401(k). Savvy investors should do just that.

Yes, unlike a traditional IRA, you'll invest after-tax dollars. The trade-off, though, is that when you pass the 59-and-a-half-year mark, you're free to tap those proceeds -- which grow on a tax-free basis -- without paying Uncle Sam a single cent in taxes.

When it comes to preparing for your financial future, a Roth is another deal that's tough to beat.

Stay informed
If you want to retire in style while meeting important near-term goals like buying a house or funding a child's college education, it pays (literally!) to stay up to speed on your options for getting those jobs done. Smart portfolio construction is a must, for example, as is knowing how to take maximum advantage of taxable (as well as tax-favored) accounts.

At the Fool's latest investment service, Ready-Made Millionaire, we've taken the guesswork out of building a portfolio that we think has what it takes to surpass the market over the next three to five years and beyond. Our compact, real-money portfolio (the Fool has a cool million invested) includes three world-class mutual funds, four stocks that currently trade well below our estimate of their value, and a revved up mutual fund that provides a double-dose of exposure to an area that lies near the market's sweet spot.

RMM will open to new members next month. If you'd like to learn more about our set-and-forget portfolio -- and snag (for free) our 11-Minute Millionaire special report -- just click here. Peruse free our write-up, and when the doors of our service swing open again, we'll make sure you're among the first to know.

This article was originally published on Dec. 7, 2006. It has been updated.

Shannon Zimmerman runs point on the Fool's Ready-Made Millionaire and doesn't own any of the companies mentioned. Johnson & Johnson is a Motley Fool Income Investor recommendation. You can check out the Fool's strict disclosure policy by clicking right here.


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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$18.00 (-1.91%) $0.35
General Electric Company Stock Quote
General Electric Company
$75.18 (1.10%) $0.82
Johnson & Johnson Stock Quote
Johnson & Johnson
$170.20 (-0.53%) $0.91
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$147.81 (-1.60%) $-2.40
Schlumberger Limited Stock Quote
Schlumberger Limited
$34.65 (-0.03%) $0.01
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$61.60 (0.83%) $0.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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