Navigating Investment Risks In Your 401(K)

401(k) plans are risky investments as heavy concentrations of company stock in such plans pose substantial risks to employees and employers alike. Declines in the value of company stock held in 401(k) accounts have led to litigation for some companies in recent years. Employers whose plan has a heavy concentration in company stock may face legal action when the company’s business results and stock value head south.

Market cycles

Money market funds mitigate risk in a 401(k) by maintaining a stable value. This type of investment is meant to offer a high level of liquidity with a low level of risk.

The good news is that the percentage of company stock in 401(k) plans has been on the decline in recent years. The trend, however, is rooted in misfortune. According to the Congressional Resource Service, when shares of the Enron Corporation crashed following the company’s 2002 bankruptcy, 62% of the assets in the Enron 401(k) plan were invested in Enron stock.

For employers, there is fiduciary risk. For some companies in recent years, declines in the value of company stock held in 401(k) accounts have led to litigation. Employers whose plan has a heavy concentration in company stock may face legal action when the company’s business results and stock value head south. This is especially true when employee and employer contributions are automatically invested in company stock.

With the enactment of the Pension Protection Act (PPA) of 2006, plan participants gained new diversification rights. For example, under the PPA, if any of an employee’s own contributions are invested in company stock, the employee has the right to move these balances into other plan investments at any time.

Diversification rights

Under the Pension Protection Act (PPA) of 2006, plan participants gained new diversification rights. For example, if any of an employee’s own contributions are invested in company stock, the employee has the right to move these balances into other plan investments at any time.

The concept behind "less is more" is to streamline your investment decision-making responsibilities to minimize the complexity of your investment choices. You can develop a diversified portfolio by investing in funds that fall into these five asset-class categories.

Money market funds mitigate risk in a 401(k) by maintaining a stable value. This type of investment is meant to offer a high level of liquidity with a low level of risk.

The return potential is relatively low, but you will never receive less than what was originally invested.

The percentage of company stock in 401(k) plans has been on the decline in recent years. The trend, however, is rooted in misfortune. According to the Congressional Resource Service, when shares of the Enron Corporation crashed following the company’s 2002 bankruptcy, 62% of the assets in the Enron 401(k) plan were invested in Enron stock.

Company stock

K) plans are risky investments as heavy concentrations of company stock in such plans pose substantial risks to employees and employers alike.

The percentage of company stock in 401(k) plans has been on the decline in recent years, which is rooted in misfortune. According to the Congressional Resource Service, when shares of the Enron Corporation crashed following the company’s 2002 bankruptcy, 62% of the assets in the Enron 401(k) plan were invested in Enron stock.

For employers, there is fiduciary risk. For some companies in recent years, declines in the value of company stock held in 401(k) accounts have led to litigation. Employers whose plan has a heavy concentration in company stock may face legal action when the company’s business results and stock value head south. This is especially true when employee and employer contributions are automatically invested in company stock.

With the enactment of the Pension Protection Act (PPA) of 2006, plan participants gained new diversification rights. For example, under the PPA, if any of an employee’s own contributions are invested in company stock, the employee has the right to move these balances into other plan investments at any time.

Everyone has a different risk appetite when it comes to investing. Your 401(k) will be affected by market cycles over the course of its lifetime, but some investment choices will ensure more stability than others. If you prefer to play it safe, there are a number of lower-risk investment options that you can explore for your 401(k).

Return potential

The return potential of a 401(k) is relatively low, but you will never receive less than what was originally invested. Money market funds mitigate risk in a 401(k) by maintaining a stable value. This type of investment is meant to offer a high level of liquidity with a low level of risk.

Everyone has a different risk appetite when it comes to investing. Your 401(k) will be affected by market cycles over the course of its lifetime, but some investment choices will ensure more stability than others. If you prefer to play it safe, there are a number of lower-risk investment options that you can explore for your 401(k).

The good news is that the percentage of company stock in 401(k) plans has been on the decline in recent years. The trend, however, is rooted in misfortune. According to the Congressional Resource Service, when shares of the Enron Corporation crashed following the company’s 2002 bankruptcy, 62% of the assets in the Enron 401(k) plan were invested in Enron stock.

For employers, there is fiduciary risk. For some companies in recent years, declines in the value of company stock held in 401(k) accounts have led to litigation. Employers whose plan has a heavy concentration in company stock may face legal action when the company’s business results and stock value head south. This is especially true when employee and employer contributions are automatically invested in company stock.

The Pension Protection Act (PPA) of 2006 has given plan participants new diversification rights. For example, under the PPA, if any of an employee’s own contributions are invested in company stock, the employee has the right to move these balances into other plan investments at any time.

Investment options

K) plans are risky investments as heavy concentrations of company stock in such plans pose substantial risks to employees and employers alike. Declines in the value of company stock held in 401(k) accounts have led to litigation for some companies in recent years. Employers whose plan has a heavy concentration in company stock may face legal action when the company’s business results and stock value head south.

The good news is that the percentage of company stock in 401(k) plans has been on the decline in recent years. The trend, however, is rooted in misfortune. According to the Congressional Resource Service, when shares of the Enron Corporation crashed following the company’s 2002 bankruptcy, 62% of the assets in the Enron 401(k) plan were invested in Enron stock.

Everyone has a different risk appetite when it comes to investing. Your 401(k) will be affected by market cycles over the course of its lifetime, but some investment choices will ensure more stability than others. If you prefer to play it safe, there are a number of lower-risk investment options that you can explore for your 401(k).

Money market funds mitigate risk in a 401(k) by maintaining a stable value. This type of investment is meant to offer a high level of liquidity with a low level of risk. The concept behind "less is more" is to streamline your investment decision-making responsibilities to minimize the complexity of your investment choices. You can develop a diversified portfolio by investing in funds that fall into these five asset-class categories. But it's likely that you'll also need access to Treasury Inflation-Protected Securities (TIPS) funds, high-yield funds, real estate investment trust (REIT) funds, mid-capitalization equity funds, emerging markets funds, and commodity funds to build a comprehensive portfolio for your long-term financial needs.

Frequently asked questions