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What Investments Should I Use in My 401(k)

Retirement Account Focus, Part VI

We've been talking about why it's crucial to invest in retirement accounts, how much you should contribute, and the benefits of saving. But how should you invest the money once it's taken out of your check?

In the world of the 401(k), the most common option is a participant-directed plan, which allows the employee to choose from an assortment of investments. If you haven't spent much time dealing with investments, the array of choices can be intimidating and you may find yourself wanting to change your mind about that 401(k). This isn't an option! The answer is the same as most things in life — just simplify your choices. Check out some options when you

In my experience, most plans offer some kind of "life cycle" funds that tailor investments to your age or "target-maturity" funds that make investments geared toward your planned retirement date. You'd only need to check on your account a couple times a year with these funds, because they rebalance automatically and gradually become more conservative as you get closer to retirement. While target funds aren't perfect, they certainly make retirement saving easy.

If you're a more seasoned investor you may be able to set up a more complex asset allocation, or ask a knowledgeable and trusted friend to help you. And if you want to take it a step further, ask a financial adviser to come up with the best asset allocation given your personal savings goals. You can always start out with a target or life cycle fund and switch out later if you become more comfortable with a portfolio that you've created.

Be sure that you review your investments occasionally to ensure they make sense. For example, if you decide that you're going to retire earlier than expected you would need to adjust your 401(k) investments to reflect your new situation. What's your 401(k) investment strategy? Have you ever used the age based funds?

Join The Conversation
penpaperprincess penpaperprincess 9 years
My company just began offering a 401(k), which would be 100% vested automatically for existing employees, which is nice. I was really overwhelmed at first about how to set up my portfolio. I ran my options by my accountant/money manager, who suggested 2 stocks (mutual funds), based on their reputation, histories and the companies they have invested in. I had the option to do age based funds, but I wanted to be a little more aggressive with this particular retirement account. (I have a personal IRA/Roth.) I went with my accountant's suggestions, but it's good to know that I can adjust/change the portfolio as I become more knowledgeable about investing. I'm only 24, so I think this is a great start!
princessjaslew princessjaslew 9 years
unfortunately, at the age of 28, i am still in school. so retirement really isn't on my mind right now. i'm just focusing on making enough to get me through school. but the articles so far have been REALLY helpful. thank you!
mlen mlen 9 years
my plan doesn't have age based funds so i researched the funds in the plan and then diversified my holdings amongst them. i have my money in like 5 different funds- spread out amongst growth, value, and international, and small, mid, and large cap.
bellaressa bellaressa 9 years
I also researched all the funds and picked which ones I think is best from their reputation and the history of the funds.
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