The Secrets of the 401(k)18 Ways to Increase Your Retirement Cash

Updated: Aug 1

Many Americans are deeply mismanaging their retirement accounts. Average investors aren’t getting nearly enough returns to get to where they need to be. Are you one of them?

Is it keeping you up at night? Are you concerned about living solely on Social Security for the rest of your life? Hopefully you haven’t reached that stage. But if you’re concerned about having enough money to live comfortably… there are some important steps you can take right now.

Whether you need to play catch up or simply want to improve your situation, here are 18 ways to grow your retirement savings that you may never have heard of. These can quickly boost a meager 401(k) into a fully financed retirement fund.

Let me show you the steps you can take to add hundreds of thousands to your account…

401(k) Secret No. 1: How to Become a 401(k) Millionaire on a $35,000 per Year Salary

Only 0.2% of people with a 401(k) account have more than seven figures inside of it.

It’s rare. But here’s what’s surprising…

Of that tiny percentage, a huge percentage of the 401(k) millionaires DO NOT have big salaries.

According to Jack VanDerhei of the Employee Benefit Research Institute “They don’t necessarily have higher-than-average salaries or the investing IQ of Warren Buffett. However, there is one characteristic that differentiates the winners from the non-winners.”

That characteristic is their contribution rate. A high percentage of those million-dollar savers had constant participation and high contribution rates.

Someone who earns $35,000 and saves 12% to 13%, including a company match, gets an annual raise of 3.5%, and annual returns of 7% would save a $1 million over the course of a 40-year career.

If your salary is higher and/or you earn a higher annual return you can get there even faster. One of the biggest obstacles is that most participants can’t – or don’t – take full advantage of their 401(k)s. For instance, the Internal Revenue Service (IRS) has raised the contribution cap to $19,500, yet less than 9% of plan participants contribute that much, according to the Employee Benefit Research Institute.

The message here is straightforward. If you want to be a 401(k) millionaire when it’s time to retire, do the following things: Try to save 12% to 13% or more of your salary and make every effort to max out your contribution and hit the $19,500 number.

401(k) Secret No. 2: How to Add $155,000 to Your Account Total

What we’re talking about is an incredible fee-reduction opportunity.

Retirement plan providers have been overcharging investors for decades – creating a huge drag on returns.

The simple fact is that many 401(k) plans are much too expensive. The average investor is charged 0.37% of assets annually. (In small plans, it’s often much more – as high as 1.42%. In large plans, it’s a little less.) Some plans tack on additional “wrap fees” of up to 1% of your assets. Then there are the mutual funds inside the 401(k)s. Many plans offer only funds that charge fees of 1.5% or more – far higher than the 0.5% to 1% average fees for stock funds.

Consider this jarring figure: An ordinary American household with two working adults will cough up almost $155,000 in 401(k) fees over a lifetime, according to the think tank Demos.

Worse still is that a stunning 70% of those polled in a recent AARP survey responded that they didn’t think they were being charged anything!

That confusion should disappear. New rules on fee disclosure can help you dramatically drive down costs in your 401(k).

Thanks to a new rule issued by the Labor Department, investors now receive reports that, for the first time, detail all the fees they are being charged by their 401(k) plan providers.

It’s a landmark moment that should go a long way toward maximizing the nest eggs of regular savers. Be sure to check and see what you are paying in fees. If your fees aren’t reasonable, make changes to your personal plan and/or put pressure on your employer to offer additional investment options that charge lower fees.

If you are comfortable with it, start a self-directed 401(k). This way you can pick the specific investments you want in your investment account and The Oxford Club portfolios can be your guide. And there is always our Gone Fishin’ Portfolio for investors who want to be in the stock market but aren’t comfortable picking their own stocks.

401(k) Secret No. 3: The Instant Return… How to Add Another $172,537 to Your Retirement

This is the easiest money you’ll ever make. It’s the one investment you can make in your 401(k) that can instantly get you a 100% return on your money every year.

Find out if your employer matches contributions to your retirement account. Many employers offer an immediate matching contribution – up to a certain percentage of your pay – that they deposit directly into your 401(k) plan.

Generally, employers will match anywhere from 3% to 6% of an employee’s pay up to a certain dollar limit or percentage of their pay. In a typical matching situation, the employer matches 50% to 100% of employee contributions up to 3% of their salary.

According to U.S. News, a 30-year-old employee earning a $50,000 salary who saves $5,000 per year and gets a 3% 401(k) match will accumulate $747,662 by age 65, assuming 6% annual investment returns. An employee who saves the same amount without getting an employer match would retire with just $575,125. That’s a $172,537 difference.

It seems obvious that employer contributions to your retirement account make it much easier to amass a bigger nest egg… but it’s mind-boggling the number of employees who don’t take full advantage of this.

Your employer match is an immediate 100% return on your investment. You automatically make 100% on those matched dollars before you’ve even invested the money. That’s why it’s critical you contribute up to the amount your employer will match (at the very least).

And, of course, the employer’s contribution becomes yours and you earn a tax-free return on those funds in addition to what you’ve contributed. You are crazy if you do not take advantage of this. It is the simplest, most reliable way you can find to double your money…

Make sure you contribute enough in your 401(k) to receive the maximum contribution from your employer. This is free money to you… and it will make a huge difference in the long run.

401(k) Secret No. 4: How to Keep the Government From Taking a 20% Cut of Your 401(k)

The whole point of a 401(k) is to save money for retirement tax-free. So once you’ve accumulated a nice nest egg, don’t let this mistake happen.

It happens more than you might think, and it can really take a bite out of your savings.

I’m talking about a circumstance where you decide to transfer your retirement savings out of your 401(k). If you ever decide to do this… be sure you do a direct rollover.

Ask your former employer to directly transfer the money to an IRA or different 401(k).

If the company makes out the check to you, 20% of your account balance will be withheld for income tax. You will then have 60 days to deposit the cash, including the amount withheld, in a new tax-deferred retirement account.

Miss the deadline, and Uncle Sam keeps the 20% and you become responsible for any additional income tax due.

If you’re under age 55, you will also have to pay a 10% early withdrawal penalty on any amount not deposited in a new retirement account.

Bottom line: Make sure if you are going to roll over an old 401(k) that you always have the check made payable to the new custodian.

401(k) Secret No. 5: Take 10 Minutes to Add Anywhere From $45,000 to $2.3 Million to Your Retirement Account

For this strategy to work, we’re asking that you take approximately 10 minutes each year and evaluate your investment portfolio from a tax perspective. No matter how much you handed Uncle Sam this year, there are ways to ensure you pay less next year.

The Oxford Club’s Chief Investment Strategist Alexander Green lays out five specific steps to help you maximize what you keep come tax season:

  1. Outside your retirement accounts, shift all or most of your Treasury and corporate bonds to municipal bonds. They will compound tax-free.

  2. Do your short-term trading in your IRA or other qualified retirement accounts. That way, instead of paying taxes of up to 37% on realized gains, your money will grow tax-deferred.

  3. Outside your retirement account, hold your stocks for 12 months or more to qualify for more favorable long-term capital gains tax treatment.

  4. Hold your tax-efficient assets – like individual stocks, exchange-traded funds (ETFs) and index funds – in your nonretirement accounts. Hold your tax-inefficient investments – like bonds, real estate investment trusts (REITs) and high dividend-paying stocks – in your retirement account. This minimizes the annual tax bite from the IRS.

  5. At the end of each year, take capital losses to offset realized capital gains. (You can buy the same securities back after 30 days.) And when possible, take an additional $3,000 in losses against earned income. Any unused losses can be carried forward for use in future years.

To avoid paying more than your “fair share,” it’s important to recognize and take advantage of the incentives built into the tax code. As Alex says, “It’s not how much you make… It’s how much you keep.”

If you don’t think the savings can be substantial, take a look at the chart below. If the stock market returns 11% a year, and you give up 2% to taxes and 2% to costs, that’s actually almost 20% of your annual return every year. So it can make a huge long-term difference.

Given an 11% return, the chart below compares keeping your taxes and your costs to a minimum (Investor “A”) with paying 2% in taxes and 2% in costs (Investor “B”), which is, according to a Vanguard study, what the average investor pays. You can see that over time – whether you’re looking at five years, 10 years, 20 years or longer – the difference is enormous in what your net return is and what the final value of your portfolio will be.

401(k) Secret No. 6: Approach Your Golden Years Worry-Free With the “Ivy League Retirement Booster”

If you’re one of the many people who haven’t saved enough for retirement… this strategy may be for you.

There is a way to “catch up” and possibly retire earlier, make your money last longer and live better in retirement. How? We call it the “Ivy League Retirement Booster.”

The key to this strategy is to use borrowed funds, or leveraged financial instruments, to increase the potential return of an investment. So understand that you are taking on more risk. But that is often what you have to do to get higher returns. If you have only a short time to build your retirement nest egg, this may be what’s necessary.

A study by two Yale professors shows that people’s “expected retirement wealth is 90% higher” if they use leverage, and that it would allow people to retire years earlier “or extend their standard of living during retirement by 27 years.”

Using leverage to buy stocks may seem extravagant, but consider some other purchases where it is a standard practice. For instance, buying a house with a mortgage loan or taking out a student loan for education.

Here’s how leverage works… Say you buy a house for $100,000 and put 10% down. Your equity (the part you own) is $10,000 and you borrow the remaining $90,000 with a mortgage. If the value of the house rises to $120,000 and you sell, you will make a profit of 100%.

How? The $20,000 gain on the property represents a gain of 20% on the purchase price of $100,000. However, since your investment is only $10,000 (the down payment), your gain works out to 100%.

The same thing happens when you buy a stock using leverage. Suppose that you want to buy 100 shares of a stock you think will go up in value. It’s $40 per share. Normally, investors will just buy 100 shares with cash (that’s $4,000). But let’s say you buy those 100 shares using 50% leverage and borrow the remaining 50% (that means you put up $2,000 and borrow the remaining $2,000).

So if the stock rose 10%, your gain (of $400) would actually be 20% of your real investment. If you have a stock that also pays a dividend, you’ve got even greater profits. The beauty of this strategy is that it frees up your cash for additional investments (in the example above you have an additional $2,000 to invest and earn money on).

If you’re going to use leverage to supercharge your portfolio returns, I suggest using margin buying – the act of borrowing money from your brokerage firm and reinvesting it in the market. The key to success, of course, is to get a greater return from your investments than you are paying on the margin rate. And let’s make something clear: Borrowing on margin will amplify both the gains and the losses from an investment, so keep the amount you borrow relatively small.

401(k) Secret No. 7: Why Millions of American Taxpayers Are Throwing Away $8,320 a Year (But You Won’t Have To)

This money-saver is all about effectively using the contribution “catch-up” provision in retirement accounts.

Congress added a catch-up contribution option to retirement plans out of concern that baby boomers hadn’t been saving enough for retirement. This new option enables savers age 50 and over to increase contributions at a time when retirement draws near.

Catch-up contributions for those 50 and over are possible in 401(k), 403(b) and 457 plans, as well as IRAs, but the rules differ among them. For our purposes, we’ll focuses on 401(k) plans.

Money put into a 401(k) plan is contributed on a “pretax basis,” meaning the amount contributed is not included in your taxable income. It directly reduces your adjusted gross income. If you’re over 50 years old, for example, in a traditional 401(k), you can actually contribute up to $26,000. If you’re in the 32% tax bracket, that’s $8,320 worth of tax savings in the year you put the money into your savings.

Think about that for a minute. The government is saying, “We’ll give you a $8,320 tax break if you put $26,000 away for your retirement.” And, remember, these are just the initial benefits: a full tax deduction and a 100% match from your employer (on a certain percentage of your contribution).

Let’s not forget these contributions go on to earn capital gains, dividends and interest on a tax-free basis for years until you make a withdrawal. Yet the Employee Benefit Research Institute tells us that less than 10% of the people that it has surveyed are maximizing their contribution! Why throw away money? Contribute as much as you can to your 401(k).

401(k) Secret No. 8: How to Earn “Dividends” on Non-Dividend-Paying Stocks

We know this sounds nonsensical at first glance.

But there is a perfectly legitimate way to collect payments from stocks that don’t pay a dividend. Here’s how it works.

Say you have some favorite stocks you own but they don’t pay dividends and you need some additional income right away. Here’s what you do… Sell covered calls to generate income on the stocks you own.

A “covered call” is an income-producing strategy where you sell, or “write,” call options against shares of stock you already own. Typically, you’ll sell one contract for every 100 shares of stock.

In exchange for selling the call options, you collect an option premium. That option premium is an immediate payment on your stock. In essence, a “dividend.”

Generally viewed as a conservative strategy, covered call writing has been used for years by professional investors to increase their investment income. But individual investors can also benefit from this simple, effective option strategy by taking the time to learn it. By doing so, investors will add to their own investment income while not limiting themselves to traditional dividend-paying stocks.

And it’s perfectly legal to use this strategy in your 401(k) or IRA account.

For example, let’s say that you own shares of ABC Inc. and like its long-term prospects and its share price, but feel in the shorter term the stock will likely trade relatively flat, perhaps within a few dollars of its current price of, say, $25. If you sell a call option on ABC for $26, you earn the premium from the option sale but cap your upside. One of three scenarios is going to play out:

1. ABC shares trade flat (below the $26 strike price). The option will expire worthless, and you keep the premium from the option. In this case, by using the covered call strategy you have successfully generated income from this stock despite the share price doing nothing.

2. ABC shares fall. The option expires worthless, you keep the premium, and again you outperform the stock.

3. ABC shares rise above $26. The option is exercised, and your upside is capped at $26, plus the option premium. In this case, if the stock price goes higher than $26, you give up some upside but you’ve successfully sold the shares for a profit and made some additional income from the premium received.

401(k) Secret No. 9: Triple the Interest You Earn on Your CDs With This Easy Move

Unless you’re one of those rare Americans who have a foreign bank account or who bought a modest amount of foreign currencies or securities, everything you own is in U.S. dollars. And right now, that could be incredibly detrimental to your financial well-being.


First, over the long term, the U.S. dollar’s value has declined and your purchasing power has been reduced.

Think about it. If everything you own is in dollars and the dollar loses 20% of its value – even if you did nothing at all with your money – your net worth has caved significantly relative to what it could have been had you diversified.

Second, with interest rates so low in the United States, it’s hard to get a decent return on your bank CDs. What’s an investor to do?

Look overseas.

For American investors, this is a chance to profit in two ways at the same time:

• You can earn higher-than-stateside interest rates.

• When you convert your pounds, euros and yen back into U.S. dollars, you will sometimes find that they have earned an additional 25% to 50% in currency conversion.

Not all countries are hell-bent on zero percent interest rates. In fact, there are dozens that are willing to pay you much more than you can receive here at home. And the good news is that you never have to leave your living room to get them. Go online and look to see who is offering foreign currency CDs.

Many reputable banks and investment firms are offering foreign currency CDs – sometimes referred to as world currency CDs – that can pay three or more times (depending on the risk you want to take on) the interest rate that U.S. bank CDs will pay you.

Further, there’s absolutely no reason you shouldn’t buy the government bonds of other sovereign nations. And considering how well these bonds pay (again, especially considering the extremely low rates paid on U.S. Treasurys), there are plenty of reasons you should.

401(k) Secret No. 10: Where You Should NEVER Open Up an IRA

Common sense tells most folks their local bank is the place to go when it’s time to set up an IRA.

But here’s why “common sense” could send you to the poorhouse!

Never, under any circumstances, open an IRA at a local community bank! Your investment choices are too limited. Use a mutual fund company like Vanguard, T. Rowe Price or Fidelity.

If you want more flexibility, try an online discount brokerage, such as TDAmeritrade or optionsXpress!

Local banks offer up IRAs as a clever disguise to get you to pump money into CDs that offer an extremely low yield. With a typical five-year CD currently paying 2.25% you can’t even keep up with inflation. You could do much better in so many other investments. Why limit yourself? Use our suggestion instead and retire richer than most folks ever will.

401(k) Secret No. 11: The “Ultra-IRA” – Build Your Personal Nest Egg as High as $3.5 Million… Without Paying ANY Taxes

If you’re saving for retirement, you are likely familiar with limits to IRA contributions. Broadly speaking, you can put in about $6,000 a year ($6,000 for those under 50 years old and $7,000 if you’re age 50 or older)… without paying any taxes upfront.

That’s great and all…

But $6,000 isn’t much when you look at the big picture. At 6% interest, you’d need 41 years to reach just $1 million with that kind of money. You may not have 20, 30 or 40 years…

But there is good news… We’ve uncovered a unique strategy that may change everything you know about retirement planning. We call it the “Ultra-IRA.” Essentially, it’s a way to build your personal retirement as high as $3.5 million (or even higher) without paying ANY taxes on it.

This strategy involves using an IRA to aggressively build your retirement account. First off, what makes this strategy feasible is that all earnings in an IRA are tax-free so long as its owner waits until age 59 1/2 to take money out.

The other part of the strategy is opening a self-directed IRA to invest in high-growth companies and nontraditional assets. We’re talking about private equity, hedge funds, real estate, small speculative companies, etc. You will generally need to use a special custodian who handles self-directed IRAs with a focus on alternative assets. (Note: You must understand that this is high-risk, high-reward investing. This is not for everybody, and you need to be able to accept a high degree of risk in return for the potential to earn much higher returns than are customary with traditional investments). According to a report from the Government Accountability Office, more and more Americans are starting to use this technique to build tax-free multi-million dollar retirement accounts.

Bottom line: When this strategy works, it can be one of the most powerful moneymaking techniques you’ve ever encountered.

401(k) Secret No. 12: Boost Your Income by Investing in the Private Stock Market

America’s richest citizens have tapped this secret for years to build their fortunes.

We call this marketplace “The Private Stock Market” because for years only institutional investors, pension funds, large banks, hedge funds, and the seriously rich and powerful were allowed to invest here. It was off-limits to regular investors. So what are these investors doing that is so profitable? They are all involved in investing in private equity – shares of companies that are not listed on a public exchange. 

Most individual investors are still excluded from participating directly in these private equity offerings. But there’s another way to get into the game – and also receive huge payouts – for no more than the price of a liquid, publicly traded stock. These special investment vehicles are called business development companies, or BDCs. They are publicly traded investment companies that provide debt and equity capital to small, privately owned enterprises.

However, BDCs are not like most stocks trading on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) or Nasdaq. Under federal guidelines, these investment outfits pay little or no corporate tax. Rather like REITs, they must distribute at least 90% of their ordinary taxable income to shareholders. This provides investors with plump, annual dividend yields and healthy capital gains potential.

Surprisingly, few investors even know BDCs exist. And that’s too bad. As you can imagine, there are thousands, if not tens of thousands, of success stories about people who invested in companies before they went public. Many early investors in Walmart, Amazon, Apple, Starbucks, etc., walked away millionaires.

Now, thanks to BDCs, investing in private companies is available to the “average” investor, and it’s a pretty sweet deal. You don’t have to research hundreds of companies, understand complex technologies or spend countless hours talking with corporate management. All the “legwork” is done for you – and you get a huge dividend!

Bottom line: This could be the safest way to set up a steady stream of income without personally taking huge risks on speculative companies.

401(k) Secret No. 13: Invest in Precious Metals With Zero Downside Risk…

What would you say if we told you there’s an easy way to invest in gold, silver and copper with zero downside risk?

That probably sounds too good to be true. But it isn’t…Importantly, you can make real money on this deal. You could make high double-digit returns if these metals soar. And once again, your worst-case scenario is getting ALL of your money back.

Let me explain…

These investments are usually called “market safe CDs” and are offered from a variety of banks and investment firms. Like all CDs, these are 100% Federal Deposit Insurance Corporation (FDIC)-insured… So no matter what happens to the price of gold, silver and copper, you’ll get all of your money back when the CD matures. But even though your risk is low, your upside potential is big… We’ve seen some recently offering as much as 45% upside on your principal.

The CD we reviewed gives equal exposure to gold, silver and copper. As the metals appreciate, you’ll make more money… The maximum you can earn over five years is 45%. Now, a 45% gain might not sound exciting. But typical five-year CDs pay 2.25%. You could do much better if these metals move into a new bull market like we saw in the last decade.

We can’t know whether that will happen. But we do know that earning decent interest on safe investments is nearly impossible today. This CD gives you a chance to earn higher-than-usual interest if gold, silver and copper move higher in price.

And the best part is… if these metals crash, you lose nothing!

This isn’t an investment that will make you rich. But if you have extra cash sitting around, it’s a smart place to “park” that money. Your downside is zero, and your upside is 45%. Not bad!

401(k) Secret No. 14: Rake In 29% Returns (Every 12 Months) With Practically No Risk!

There are few layups in the investment world. So when you see one, YOU MUST TAKE IT.

This one is a guaranteed 29% return, instantly, with no risk. But you’d be surprised how many people overlook or underfund this opportunity. Here’s the “secret”: You must always – with NO EXCEPTION – fund your IRA to the maximum allowable. Here’s why… Let’s do the math together.

In 2020, a traditional IRA allows for a maximum of $6,000 to be deposited each year. We’ll assume that you are in the 24% federal tax bracket and that your state has a 5% income tax, for a combined income tax rate of 29%. Let’s say your annual taxable income is $60,000. Your tax on this would be $17,400 ($60,000 x 29%).

Put the full $6,000 into an IRA, and your taxable income becomes $54,000. Your tax on that would be $15,660 – $1,740 less. That’s EXACTLY like making 29% without any risk ($1,740 divided by $6,000 equals 29%).

401(k) Secret No. 15: The World’s Safest Growth Strategy?

Put in $960, get back $1,691!

I can pretty much promise you’re not going to hear about this anywhere else. It doesn’t involve stocks, banks, gold, munis, collectibles or real estate. Yet before you even put down a stake here, you will KNOW ahead of time just how much money you’re set to make. This strategy takes so many of the “what ifs” out of investing.

In a world saturated with stock market talk, we rarely hear of bonds except in regard to minimizing portfolio risk. Yet corporate bonds can, for many investors, be the best thing they can do with their money. And here’s why: Corporate bonds are a predictable, reliable way to make exceptional returns outside of the stock market.

From the date you own it to the date the bond matures, you’re earning interest. You can sit back, relax and get paid consistently. Better yet, you can earn higher yields from bonds purchased at a discount. For example, you can buy 10 corporate bonds at par – or for $1,000 – and get back $10,600 (on a bond paying 6% interest).

But what if you could purchase the same 10 bonds at a discount, say for $900, and still receive the same $600 in interest? This would effectively increase not only your bond yield, but also your overall return. Bond prices fluctuate much like stock prices do. The key is to buy high-quality bonds when they are selling at a discount. It’s a simple way to improve your returns. But very few individual investors are following the bond market so they don’t take advantage of it.

On the other hand, our Oxford Bond Advantage service, takes full advantage of this technique.

Another key part of this strategy is having a staggered portfolio, in which at least one bond matures each year, returning back to you your full principal to be reinvested. Short-maturity bonds, lasting two to five years, are the best way to ensure your principal is not sitting for too long and being chipped away by inflation. In summary, buy high-quality bonds at a discount with a decent dividend, collect the cash and enjoy the peace of mind.

401(k) Secret No. 16: Invest in These Stocks and Improve Your Returns by 87%

When Fidelity looked at its 401(k) millionaires, it found they had an average of 75% of their assets in stocks and stock mutual funds… And their portfolios were widely diversified.

The Oxford Club is particularly fond of asset allocation, which represents the holy grail of investing. It’s the secret to how so many of our longtime Members got rich and stay rich.

Quite simply, asset allocation is the process of determining the optimal mix of investment opportunities – including stocks, bonds, cash and real estate – arranged in a diversified mix that suits your style, risk tolerance and immediate cash needs.

One of the most important characteristics of this strategy is the rebalancing feature. This comes after you’ve set the percentage you’re going to invest in each class/category. Then, at the end of each year, you sell off enough of the appreciated asset classes to return them to their predetermined allocated levels. This strategy has some very powerful advantages, including how it requires you to always sell high and buy low – something that eluded a great deal of investors during the dot-com and real estate crashes of the recent past.

If you’ve ignored the power of dividend-growth stocks (stocks that raise their dividend year after year), you’ve missed out on the generous returns they’ve produced over the long term. From 2000 to 2009, the S&P 500 was down 9%. But if you owned a portfolio of the S&P Dividend Aristocrat Index – S&P stocks with a 25-year track record of annual dividend raises – you would have finished 87% higher.

401(k) Secret No. 17: Increase Your Returns by Never – Ever – Losing Big Money in the Stock Market

Buying stocks is easy. The hard part is knowing when to sell. But it’s essential to building a million-dollar portfolio.

Among investors who lose money, the biggest reason is usually failure to protect profits and cut losses. Many investors are unaware that they can do that by using a safe and effective strategy: the trailing stop, or what we refer to as our “safety switch.” While most investors think of trailing stops as “stop losses,” that’s only half the story. Trailing stops also help us protect our profits as our investments move up.

The main element to The Oxford Club’s trailing stop strategy is a 25% rule. We will sell positions in our shorter-term oriented Oxford Communiqué Trading Portfolio at 25% off their closing high since we purchased the stock. For a stock purchased at $10, your initial stop is $7.50. Over the next several months, if the stock moves higher, you periodically raise your trailing stop to correspond with the new highs.

So if the stock’s highest close is now $15, your trailing stop is $11.25 (15 x 0.75), virtually ensuring you a profit if the stock drops. However, let’s say the stock continues to meander higher and now has a closing high of $25, making your stop $18.75. At this point, imagine the stock runs into unexpected trouble. Shortly thereafter, it closes below $18.75, triggering your sell stop. (We also base our sell decision on the closing price, not intra-day prices.)

All great traders and investors consistently cut losses short and let their profits run, and The Oxford Club has found that the trailing stop is one of the easiest and most effective ways of doing that. Let me add that there is no “magic” to a 25% trailing stop. That’s what we use at The Oxford Club, but you can use whatever percentage you are comfortable with. The important point is to have an exit strategy, and a designated trailing stop is a great discipline to help you stick to it.

401(k) Secret No. 18: Don’t Put All (or Even Most) of Your Eggs in One Basket: Understanding Position Sizing

This may seem obvious, but it is surprising how many people make this mistake.

Too often, it happens when employees purchase company stock in their retirement accounts, mistakenly thinking their insider status will allow them to see trouble coming. Enron is the posterchild for this mistake. Employees bought the stock in their 401(k) plans and watched it soar higher for years… until a huge scandal hit and the business had to declare bankruptcy. These folks lost their jobs and retirement savings in one fell swoop.

That wouldn’t have happened if they’d understood “position sizing,” the technical term that answers the question of “how much.” Essentially, it defines how big of a position any single holding in your portfolio should be.

We know nothing about your individual net worth, investment experience, risk tolerance or timeline. But we do have a position-sizing rule you can follow when investing in any particular stock: no more than 4% of your equity portfolio. That way, using The Oxford Club’s suggested 25% trailing stop, you’ll never have more than 1% of your portfolio at risk in any given position.

One of the main reasons to follow this strategy is to have equal opportunity and equal exposure across the portfolio. If you want to be conservative, invest less. If you’re more aggressive, invest more. But not too much more. If there’s a stock that seems to have a much higher probability for success, then maybe invest a little more… but again, not by too much.

The saddest stories we hear in the financial press are those of people who took serious financial hits late in life because they were overconfident. They liked a particular investment so much that they plunked too much in it. Big mistake.