Trying to figure out how to allocate your 401k investments can be a challenge if your not familiar with the options your plan offers. From large cap funds to target date retirement funds, the choices can be overwhelming. Here are some tips to help you decide which investment options are right for you.
Determine what your risk tolerance. Probably the easiest way to gauge this is to know how many years you have until retirement. If you're 30 plus years away, your risk tolerance is most likely greater than that of someone who has just a few years remaining.
A higher risk portfolio usually consists of a mix of large cap, mid cap, small cap and foreign funds. Some recommend a distribution of 40 percent large cap, 25 percent mid cap, 15 percent small cap and 20 percent foreign funds. If your plan happens to offer several funds for each category, check the Morningstar ratings to determine your best investment choice.
If you're within five years or so of retiring, consider allocating most of your 401k investments to bonds and money market funds, leaving no more than 30 percent in stocks. Many people make the mistake of maintaining a high risk tolerance too close to retirement, only to lose a substantial amount of money.
Tips & Warnings
- If you're leery of making your own investment choices, most plans offer target date retirement funds, which are designated by the year closest to your retirement date. Your portfolio mix is adjusted accordingly as you near retirement, removing the guesswork on your part. Check out the links below to assist you in making wise investment choices for your retirement savings. Learn how to allocate your 401k investments today.
How to Select 401k Investments
How to Allocate Your 401K Investments. Trying to figure out how to allocate your 401K investments can be a challenge if your...
How to Set Up Your 401K Contributions
The employer-sponsored 401(k) retirement plan has come a long way since its advent in the 1980s. As the most common retirement savings...
How to Invest a 401K During Bad Times in the Stock Market
While a 401k plan generally offers excellent diversification, in bad markets it can seem like everything is trading down and your diversification...
Should I Put My 401k Money Into Bond Funds?
As you put away money for retirement, you'll need to decide what 401k investment options are right for you. How much, if...
How to Balance Your Mutual Fund Portfolio
This is the basic principal behind creating a balanced portfolio with ... moderate investors mix ... The 401k Help Center recommends investors...
Can I Buy Stocks in My Fidelity 401(k) Plan?
Fidelity Investments 401K Plans; How Do I Allocate My 401(k) Fidelity? Fidelity 401k FAQ; How to Rank Fidelity Mutual Funds; How to...
How to Allocate Assets
How to Allocate Your 401K Investments. ... Mutual funds with the best asset allocation are those that have enough exposure to different...