Not Sure What to Invest Your 401k in?
Not sure what to invest your 401k in?
Here's a guide for the most common options and who they are for:
Target Date Funds
These funds invest in a percentage of stocks and bonds.
As you get closer to the target date (your retirement date), they scale out of stocks and into bonds.
Each fund has a slightly different path but the gist is that they get more conservative as you get closer to retirement.
Who It's for: People that want to set it once and never touch it again
S&P 500 Funds
These funds invest in the 500 largest companies in the US stock market.
The S&P 500 is the most common benchmark of companies in the US stock market and provides broad diversification but is concentrated in the largest companies.
Who It's For: People that want broad US stock exposure focused on the most household names.
Total Market Funds
These funds include the S&P 500 but also smaller companies in the US (mid and small cap). Buy this and you have general exposure to the entire US stock market.
Who It's For: People that want full US stock market exposure including smaller companies.
Growth vs Value Funds
Growth funds contain companies that are focused on growth instead of stability. They generally don't pay dividends and look to reinvest their profits back into the business.
Value funds contain companies that have generally been around longer and have more price stability. They typically pay dividends and are focused on still being in business 20+ years from now.
Who It's For: S&P 500 and Total Market funds contain both of these. If you want to focus on more stable, long term focus companies, choose Value. If you want to focus on what is hot now, look to Growth.
Bond Funds
These funds invest in varying types of US Bonds. They can be focused on Treasury, Corporate, or Municipal bonds. Bonds generally have lower volatility than stocks and pay interest.
Who It's For: People that want to reduce the volatility in their portfolio and generate some income.
International Funds
These funds can be for stocks or bonds and provide exposure to international companies or governments.
Who It's For: People that want to diversify outside of the US market.
Money Market
These funds invest in short term securities, are very low risk, and pay a fixed interest rate. They are often treated like cash or a savings account. Money market funds adjust their interest rate based on the Federal Funds rate.
Who It's For: People looking for security and low risk or a temporary place to hold cash
Still not sure what direction you should go?
Get in touch with us to help you make decisions based on your unique circumstances.
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Note: These are all very high level generalizations. Do your own research or consult with a professional prior to making any investments and make sure to understand exactly what it is you are purchasing.
