How to Choose Your Retirement Plan Investment Options
Participating in your employer-sponsored retirement plan is important, both as a way to save on current taxes and as a way to build long-term wealth. The investment options you choose can have a profound impact on the performance of your retirement fund. Taking the time to evaluate your options and choose the ones that work best for you can boost the value of your nest egg and put you on the road to a secure retirement.
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Instructions
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Contact the administrator of your retirement plan and ask for prospectuses for each of the funds the plan offers. The contact information for the plan administrator should be listed on your account statement.
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Review the performance of each fund in your retirement plan. The prospectus will list the performance of the fund over various time periods, as well as the performance of a benchmark index. Be wary of funds that have consistently performed worse than the benchmark index.
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Check the expenses associated with each fund offered by the retirement plan. Keeping your costs down will give you more money to invest and help your money compound more effectively. An analysis of mutual fund fees and expenses posted at the Motley Fool website found funds with expense ratios as low as 0.18 percent, so you can use that as your benchmark.
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Calculate the number of years you expect to work before retirement and use that number to choose the proper asset allocation. If you are still decades away from retirement, you can afford to take more risk and keep more of your money in the stock market in hopes of a higher return. But if retirement is just around the corner, you might want to scale back on stocks and move more of your money to safer vehicles like bonds and money market funds.
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Check your asset allocation at the beginning of every year and make sure it still meets your needs. If your stocks have had a particularly good year, you might want to sell part of your stock mutual fund investment and move the money into fixed income. If stocks have had a rough year, you might want to buy more at bargain prices and profit when things turn around.
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