Front-running in the stocks world is illegal. You can't trade in or out of a stock based on insider knowledge. But get this: Doing the same thing for your retirement is perfectly legal.
In fact, I strongly encourage it.
Your insider advantage
Think about it: You know your timeline. You know your risk tolerance. And -- most important -- you have your own interests at heart. On the Street, it's greedy and illegal to act on that kind of insider knowledge. But in planning your golden years, exploiting your insider advantage is actually responsible.
Follow the money
Cash is the key to retiring wealthy. That doesn't mean you have to greatly increase your income or find a 10-bagger growth stock. Instead, you just need to plan for the future and act on that plan. Save and invest. Front run.
Take what's free
You know what to do, but you may not know which investment vehicles to use, with so many platforms out there -- 401(k)s, IRAs, Roth IRAs, and even 401(k)-IRAs these days.
Does your company provide a 401(k) plan? If the company matches a certain percentage of your salary in the plan, sign up today and get the maximum your employer will match. That's free money. In addition, your contribution is completely tax-deferred until you retire.
After maxing out your company-matched 401(k), check out the Roth IRA. You don't have to pay taxes on a Roth IRA when it comes time to retire. And because most of us will be in a higher tax bracket at retirement, it's better to pay that lower amount of taxes now instead of the higher level later.
As for the other options, it's a matter of knowing which plans will maximize your savings and help you retire well without giving anything away to Uncle Sam.
Take advantage of your assets
Once you know how much you need to save and invest, and which vehicle will stretch your dollars, it's time to take full advantage by diversifying among asset classes. A personal asset-allocation plan will help you enjoy a more secure retirement.
If you have a low risk tolerance, you can allocate a majority of your portfolio to an index fund like the Vanguard Total Stock Market (FUND:VTSMX), which holds pretty much the entire target market. You can also diversify by sector, using niche funds to target growth areas. An emerging-market fund such as Vanguard International Value (VTRIX) includes foreign giants like Canon (NYSE:CAJ) and Credit Suisse (NYSE:CSR) among its top holdings. This is a great way to profit from economic growth in areas such as Asia, Latin America, and Africa.
There are even sector-specific funds such as T. Rowe Price Health Sciences (PRHSX) that focus on emerging trends (in this case, health-care companies). That fund's top holdings -- UnitedHealthGroup (NYSE:UNH), Amgen (NASDAQ:AMGN), Wyeth (NYSE:WYE), and Genentech (NYSE:DNA) -- should stand to benefit from increased health-care spending, which is rising at record rates. Indeed, they've already benefited: Health Sciences boasts a 25% three-year return.
Other savings vehicles that will further diversify your risk include bonds, bond funds, real estate investment trusts, as well as individual stocks. Even if you're a fairly conservative investor, you can allocate your money in a way that should allow you to meet or beat the market's return without taking huge risks with your capital.
Get an inside look
Only you know the best way to allocate and take full advantage of your savings. Make sure you use that knowledge to earn the highest returns possible, while staying within your risk tolerance.
This is just a small sampling of the retirement advice that's available. To learn more, consider being our guest at Motley FoolRule Your Retirementfree for 30 days. Advisor Robert Brokamp goes over all the details of taxes, IRAs, and individual investments, to let you can retire promptly and wealthily. He even provides stock and fund recommendations to help you get that diversified portfolio.
Front-running your retirement isn't a crime -- it's a necessity. Start today.
Fool research analyst Shruti Basavaraj wishes she could front-run her American Idol picks. UnitedHealth Group is a Motley Fool Stock Advisor pick. T. Rowe Price Health Sciences is a Champion Funds recommendation. The Fool'sdisclosure policyis made from 100% fruit juice.
