401K Investment Strategies: Common Choices And Their Impact

Most 401(k) plans help put your money to work by offering a choice of investments, usually mutual funds or exchange-traded funds (ETFs). Mutual funds are the most common investment option offered in 401(k) plans, though some are starting to offer exchange-traded funds (ETFs). Both mutual funds and ETFs contain a basket of securities such as equities. Mutual funds range from conservative to aggressive, with plenty of grades in between.

Mutual funds

Diversification is another way to help minimize investment risk. This means not putting all your eggs in one basket. A simple way to diversify is to invest in mutual funds and ETFs, which are basically "baskets" of stocks and/or bonds.

Stable value funds are another investment option that invests in low-yield but very safe assets, such as medium-term government bonds. The returns and principal are insured against loss.

Many investors don’t allocate enough of their retirement portfolios to stocks, which will likely have the highest returns over the long term. Instead, they stick to assets perceived to be low-risk investments such as bonds. While stocks are volatile, they should be an important part of investing for goals like retirement.

Paying too much in fees is another risk to be aware of. Fund expenses eat into the return you earn as an investor, so pay special attention to the fees associated with the funds you invest in.

Diversification

Mutual funds are the most common investment option offered in 401(k) plans, though some are starting to offer exchange-traded funds (ETFs). Both mutual funds and ETFs contain a basket of securities such as equities. Mutual funds range from conservative to aggressive, with plenty of grades in between. Funds may be described as balanced, value, or moderate.

Stable value funds are another option, as they invest in low-yield but very safe assets, such as medium-term government bonds, and the returns and principal are insured against loss.

Stock mutual funds are also an option, as they invest in stocks and may have specific themes, such as value stocks or dividend stocks. One popular option here is an S&P 500 index fund, which includes the largest American companies and forms the backbone of many 401(k) portfolios.

Bond mutual funds are another option, as they invest exclusively in bonds and may feature specific kinds of bonds, such as short- or intermediate-term, as well as bonds from certain issuers such as the U.S. government or corporations.

Target-date mutual funds are also an option, as they will invest in stocks and bonds, and they'll shift their allocations to each based on a specific target date or when you want to retire.

Stocks

Mutual funds are the most common investment option offered in 401(k) plans, though some are starting to offer exchange-traded funds (ETFs). Both mutual funds and ETFs contain a basket of securities such as equities. Mutual funds range from conservative to aggressive, with plenty of grades in between. Funds may be described as balanced, value, or moderate.

Stock mutual funds are a popular investment option. These funds invest in stocks and may have specific themes, such as value stocks or dividend stocks. One popular option here is an S&P 500 index fund, which includes the largest American companies and forms the backbone of many 401(k) portfolios.

Diversification is another way to help minimize investment risk. This means not putting all your eggs in one basket. A simple way to diversify is to invest in mutual funds and ETFs, which are basically "baskets" of stocks and/or bonds.

Many investors don’t allocate enough of their retirement portfolios to stocks, which will likely have the highest returns over the long term. While stocks are volatile, they should be an important part of investing for goals like retirement.

Fund expenses eat into the return you earn as an investor, so pay special attention to the fees associated with the funds you invest in.

Bonds

Diversification is another way to help minimize investment risk, which means not putting all your eggs in one basket. A simple way to diversify is to invest in mutual funds and ETFs, which are basically "baskets" of stocks and/or bonds.

Many investors don’t allocate enough of their retirement portfolios to stocks, which will likely have the highest returns over the long term. Instead, they stick to assets perceived to be low-risk investments such as bonds. While stocks are volatile, they should be an important part of investing for goals like retirement.

Fund expenses eat into the return you earn as an investor, so pay special attention to the fees associated with the funds you invest in.

Fees

When it comes to investing your 401(k), fees are an important consideration. Fund expenses eat into the return you earn as an investor, so pay special attention to the fees associated with the funds you invest in.

Mutual funds are the most common investment option offered in 401(k) plans, though some are starting to offer exchange-traded funds (ETFs). Both mutual funds and ETFs contain a basket of securities such as equities. Mutual funds range from conservative to aggressive, with plenty of grades in between. Funds may be described as balanced, value, or moderate. All of the major financial firms use similar wording.

Stable value funds invest in low-yield but very safe assets, such as medium-term government bonds, and the returns and principal are insured against loss.

Diversification is another way to help minimize investment risk. This means not putting all your eggs in one basket. A simple way to diversify is to invest in mutual funds and ETFs, which are basically "baskets" of stocks and/or bonds.

At a minimum, contribute enough to maximize your employer’s match. Once you have established a portfolio, monitor its performance and rebalance it when necessary.

Frequently asked questions