How Can I Invest My 401k Money Outside of Stocks and Bonds?

Balance your portfolio with your needs to help it grow and stay safe until you are ready to retire.

If you are saving for retirement, it is a good idea to diversify investments. It is important to have a mix of equity, fixed-income and less-volatile investments. You can easily invest your 401k savings into any of those investment vehicles. Less-risky investments, such as certificates of deposit or money-market savings, have a lower return, and it is important to balance your risk tolerance with your desired return to optimize your retirement portfolio.

Instructions

1. Take a look at your current 401k and the assets in which you are invested. Note what percentage of your 401k is invested in stocks, bonds, mutual funds, and any other investment vehicles. Remember to note that each mutual fund is different. Some mutual funds are made up of stocks, bonds, cash, government securities or a combination of investment types.

2. Decide what you think your optimal investment mix would consist of. If you are young, it is often better to be in more volatile assets with higher potential for large returns, as you will not need the assets in the short term. As you approach retirement, it is best to move to more conservative investments to ensure you do not take losses you do not have time to recover from.

3. Research investment options offered through your 401k provider. Most likely, you are given a set of mutual funds to choose from. Many of those include cash, Treasury bills and other investments that are not made up of stocks and bonds. Be sure to look into money-market funds, CDs and other cash investment vehicles.

4. Reallocate your portfolio to your new optimal mix either through your 401k provider's website or by phone. Some companies charge fees to reallocate your portfolio, and some charge higher fees to make changes on the phone compared with fees for making changes online.

Tips & Warnings

• If your 401k plan is held through an employer, you are stuck with its investment options as long as you want to continue to earn any matching investments. Each 401k company has its own specific offerings. Sometimes those are fairly limited.

• If your 401k is with an old employer, it is probably best to do a "rollover" and move the money somewhere else. Employer plans often charge large fees for your investments. You can convert the 401k to an IRA or Roth IRA and have more control over your investments, and likely cut down on fees as well.

References

• Narrow Bridge: Starting Your 401k at a New Job
• Stocks and Mutual Funds: Diversify Your 401k Investments

Resources

• The Street: Weight Your Portfolio Risk