Investment Options for a 401k

Your employer-offered 401k makes tax-deferred saving easier than ever.

Investing in an employer 401k offers an nearly effortless way to save money on a tax-deferred basis. Knowing your 401k options helps to keep money invested according to your investment goals. Employer-sponsored plans usually limit your choices to a specified list.

Money Market and Stable Value Funds

Many investors opt to keep money in relatively safe investments, such as money markets or a short-term stable value or income funds. While these funds do not generate large returns in 2010, their risk is small. During declining or confusing financial market conditions the option to park your funds in a safe place makes good sense.

Stock Market Mutual Funds

Your 401k may offer a family of equity funds. Obtain a prospectus for any mutual fund before investing, and be aware that stock market funds carry a risk of losing capital in your retirement plan. If your mutual fund investment declines to a target loss percentage, consider transferring assets to less risky investments in order to avoid further losses.

401k Plan Mechanics

Know how to move money between funds in your 401k. Some plans limit the number of times investors may move money within their 401k accounts each year. Maximize your 401k investment if your employer provides funds to match your 401k contributions. Employer generosity may be the greatest option of all.

References

• IRS.gov: Topic 424 - 401(k) Plans
• The Wall Street Journal: When Safe Places No Longer Feel So Safe
• "The Incredible Investment Book"; Chuck Salisbury; 2009

Resources

• Fidelity.com
• "The Wall Street Journal Guide to Starting Your Financial Life"; Karen Blumenthal; 2009
• "The Wall Street Journal Complete Personal Finance Book"; Jeff D. Opdyke; 2010
• "Analytical Perspectives: Budget of the US Government"; FY 2010:
• "Aging Nation"; James H. Schultz, Robert H. Binstock; 2008