Navigating 401(K) Choices: Strategies For Smart Investment Decisions

Choosing investment options for your 401k can be a relatively low-effort way to invest, but there are many options to consider. Mutual funds are professionally managed investments that allow investors to pool their money together to invest in dozens, sometimes hundreds of companies at once. Annuities are also one of the options on your employer’s 401k plan, where you make payments to an insurance company, and in return, they promise to grow your money and send you payments when you retire. Target date funds are often chosen as investment options in a 401k plan, but you may have the option to choose between a Roth 401k or a traditional 401k.

Diversify your mutual funds

When choosing your 401(k) investments, it is important to diversify your investments between four types of mutual funds: growth and income, growth, aggressive growth, and international. This will help to reduce the risk of your investments.

Mutual funds are professionally managed investments that allow investors to pool their money together to invest in dozens, sometimes hundreds of companies at once. With mutual funds, you don’t have the same amount of risk that comes with single stocks. Instead, you’re spreading your investments across many different companies with built-in diversification.

You might find annuities as one of the options on your employer’s 401(k) plan. The basic idea of an annuity is that you make payments to an insurance company, and in return, they promise to grow your money and send you payments when you retire, giving you a steady stream of income throughout your retirement.

Target date funds are often chosen as investment options in a 401(k) plan, but there may be a myriad of options to choose from. If you plan to “do-it-yourself”, consider what kind of retirement portfolio would best suit your needs.

If you work for a publicly traded company, then you may have the option of investing in company stock. You may even be offered an ESPP (employee stock purchase plan), either when you start or after you’ve worked at your company for a certain period of time. An ESPP allows employees to buy company stock at a discount through a payroll deduction.

Consider target date funds

Target date funds are an investment option that puts your investment strategy on auto-pilot. You choose a fund based on your expected retirement year, and the portfolio manager adjusts the asset allocation on a regular basis to try to maximize the fund’s return, based on an age-appropriate level of risk.

Target date funds are often chosen as the default investment option in a 401(k) plan, but there may be a myriad of options to choose from, including alternative investment strategies.

We don’t recommend target date funds because by the time you’re ready to retire, your 401(k) will be mostly invested in bonds and money markets that won’t give you the growth you need to support you through 30-plus years of retirement.

When picking your 401(k) investments, try to diversify your investments between four types of mutual funds: growth and income, growth, aggressive growth, and international. Look for funds with a long track record of strong returns.

If you plan to “do-it-yourself”, consider what kind of retirement portfolio would best suit your needs.

Check your beneficiary form

If you have filled out your 401(k) beneficiary form recently, you may not need to do anything. However, if it has been a while, you should contact your 401(k) plan manager to ensure that your funds end up where you want them.

Target date funds are often chosen as investment options in a 401(k) plan, but there may be a myriad of options to choose from. If you plan to “do-it-yourself”, consider what kind of retirement portfolio would best suit your needs.

Mutual funds are the most common type of investment choice offered by 401(k) plans, and with good reason. Mutual funds are professionally managed investments that allow investors to pool their money together to invest in dozens, sometimes hundreds of companies at once. With mutual funds, you don’t have the same amount of risk that comes with single stocks. Instead, you’re spreading your investments across many different companies with built-in diversification.

When picking your 401(k) investments, try to diversify your investments between four types of mutual funds: growth and income, growth, aggressive growth, and international. Look for funds with a long track record of strong returns.

Annuities are one of the options on your employer’s 401(k) plan. The basic idea of an annuity is that you make payments to an insurance company, and in return, they promise to grow your money and send you payments when you retire, giving you a steady stream of income throughout your retirement.

Invest in company stock

If you work for a publicly traded company, you may have the option of investing in company stock. You may even be offered an ESPP (employee stock purchase plan), either when you start or after you’ve worked at your company for a certain period of time. An ESPP allows employees to buy company stock at a discount through a payroll deduction.

You can also invest in mutual funds, which are the most common type of investment choice offered by 401(k) plans. With mutual funds, you don’t have the same amount of risk that comes with single stocks. Instead, you’re spreading your investments across many different companies with built-in diversification.

Target date funds are often chosen as investment options in a 401(k) plan, but there may be a myriad of options to choose from. If you plan to “do-it-yourself”, consider what kind of retirement portfolio would best suit your needs.

When picking your 401(k) investments, try to diversify your investments between four types of mutual funds: growth and income, growth, aggressive growth, and international. Look for funds with a long track record of strong returns.

It's important to note that while auto features and investment options are designed to make our lives easier, they aren’t immune from needing occasional course correction. You should still regularly check to see if your account growth is keeping up with your long-term plans.

Compare annuity options

Annuities are one of the options on your employer’s 401(k) plan. The basic idea of an annuity is that you make payments to an insurance company, and in return, they promise to grow your money and send you payments when you retire, giving you a steady stream of income throughout your retirement.

When comparing annuity options, it is important to consider the following factors:

• Annuity Type: There are different types of annuities, such as fixed annuities, variable annuities, and index annuities. Each type has its own features and benefits, so it's important to understand the differences.
• Payment Options: Annuities offer various payment options, including lump-sum payments, monthly payments, and income streams. Consider your retirement needs and how you want your income to be structured.
• Guarantees and Benefits: Compare the guaranteed income benefits and death benefits offered by different annuity providers. These guarantees can provide financial security and peace of mind.
• Fees and Expenses: Review the annual fees and expenses associated with each annuity option. These costs can impact your overall returns and should be considered when making your decision.
• Tax Implications: Understand the tax treatment of annuities in your jurisdiction. Tax laws can vary, and certain annuity features may have different tax consequences.
• Liquidity: Consider the liquidity of the annuity, as some annuities may have restrictions on withdrawals or transfers.
• Customer Service and Support: Evaluate the quality of customer service and support provided by the annuity provider. This can be crucial for addressing any questions or issues you may have during your retirement journey.

By carefully comparing these factors, you can make an informed decision when choosing annuity options for your 401(k) plan, ensuring that your retirement income is well-managed and aligned with your financial goals.

Frequently asked questions