Navigating Your 401(K) Investments: A Comprehensive Guide

When you start contributing money to a 401(k), you then have to choose investments. Otherwise, your contributions will sit in a money market account. All investing is risky and returns are never guaranteed, but it can actually be more risky to keep too much of your savings in cash, thanks to inflation.

Risk tolerance

All investing is risky and returns are never guaranteed, but it can actually be more risky to keep too much of your savings in cash, thanks to inflation. Still, you don't want to go all in on one stock or investment, particularly if a rocky market makes you uneasy and anxious, or likely to do something drastic, like pull your money out of your account. You'll want to determine an appropriate asset allocation, or how much of your investments will be in stocks (also known as equities) and how much will be in "safer" investments, like bonds. Stocks have the potential for greater returns, but can be more volatile than bonds.

K)s tend to have a small investment selection that’s curated by your plan provider and your employer. You’re not selecting individual stocks and bonds (whew!), but mutual funds — ideally ETFs or index funds — that pool your money along with that of other investors.

Some people think investing is too risky, but the risk is actually in holding cash. That’s right: You’ll lose money if you don’t invest your retirement savings. Let’s say you have $10,000. Uninvested, it could be worth less than half that in 30 years, factoring in inflation. But invest 401(k) money at a 7% return, and you’ll have over $75,000 by the time you retire — and that’s with no further contributions.

If you’re the type to jump ship, you may want to take a little less risk. If you live for that kind of thrill, you might take more. (We have a risk tolerance quiz here.)

Once you start contributing money to a 401(k), you then have to choose investments. Otherwise, your contributions will sit in a money market account.

Asset allocation

K)s tend to have a small investment selection that’s curated by your plan provider and your employer. You’re not selecting individual stocks and bonds, but mutual funds — ideally ETFs or index funds — that pool your money along with that of other investors.

All investing is risky and returns are never guaranteed, but it can actually be more risky to keep too much of your savings in cash, thanks to inflation. Still, you don't want to go all in on one stock or investment, particularly if a rocky market makes you uneasy and anxious, or likely to do something drastic, like pull your money out of your account. You'll want to determine an appropriate asset allocation, or how much of your investments will be in stocks (also known as equities) and how much will be in "safer" investments, like bonds. Stocks have the potential for greater returns, but can be more volatile than bonds.

Some people think investing is too risky, but the risk is actually in holding cash. That’s right: You’ll lose money if you don’t invest your retirement savings. Let’s say you have $10,000. Uninvested, it could be worth less than half that in 30 years, factoring in inflation. But invest 401(k) money at a 7% return, and you’ll have over $75,000 by the time you retire — and that’s with no further contributions.

Once you start contributing money to a 401(k), you then have to choose investments. Otherwise, your contributions will sit in a money market account.

Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Mutual funds

All investing is risky and returns are never guaranteed, but it can actually be more risky to keep too much of your savings in cash, thanks to inflation. Stocks have the potential for greater returns, but can be more volatile than bonds.

If you’re the type to jump ship, you may want to take a little less risk. If you live for that kind of thrill, you might take more. 401(k)s tend to have a small investment selection that’s curated by your plan provider and your employer. You’re not selecting individual stocks and bonds, but mutual funds — ideally ETFs or index funds — that pool your money along with that of other investors.

Finding the money to save in the account is just step one. Step two is investing it, and that’s one place where people often get tripped up. Some people think investing is too risky, but the risk is actually in holding cash. That’s right: You’ll lose money if you don’t invest your retirement savings. Uninvested, it could be worth less than half that in 30 years, factoring in inflation. But invest 401(k) money at a 7% return, and you’ll have over $75,000 by the time you retire — and that’s with no further contributions.

Return on investment

Investing in a 401(k) is risky and returns are never guaranteed. However, keeping too much of your savings in cash can be more risky due to inflation. Stocks have the potential for greater returns but can be more volatile than bonds.

When investing in a 401(k), you should determine an appropriate asset allocation, or how much of your investments will be in stocks (also known as equities) and how much will be in "safer" investments, like bonds.

K)s tend to have a small investment selection that’s curated by your plan provider and your employer. You’re not selecting individual stocks and bonds, but mutual funds — ideally ETFs or index funds — that pool your money along with that of other investors.

Some people think investing is too risky, but the risk is actually in holding cash. If you don’t invest your retirement savings, you’ll lose money due to inflation. For example, if you have $10,000 and don’t invest it, it could be worth less than half that in 30 years. However, if you invest 401(k) money at a 7% return, you’ll have over $75,000 by the time you retire — and that’s with no further contributions.

Therefore, investing in a 401(k) can be a wise decision that can yield significant returns over time.

Inflation

When you invest your 401k, you're essentially putting your money to work for you. This means that your money has the potential to grow over time, which can help you reach your financial goals. However, this also means that you're taking on some risk. If the market takes a downturn, your investments could lose value.

To mitigate the effects of inflation, it's important to diversify your investments. This means spreading your money across different types of investments, such as stocks, bonds, and mutual funds. By diversifying your investments, you can reduce your risk and protect your savings from the effects of inflation.

It's also important to consider your risk tolerance when investing your 401k. If you're comfortable with taking on more risk, you may want to invest in more aggressive assets, such as stocks. If you're more risk-averse, you may want to invest in more conservative assets, such as bonds. By understanding your risk tolerance, you can make informed decisions about how to invest your 401k.

Frequently asked questions