What Investments Should I Invest in My 401k?

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401k“What Investments Should I Invest in My 401k?” That is a question I would get nearly every day in my job as a stock broker. The question makes sense as I know that many are new to investing in the stock market and are handed a packet with a bunch of information and little direction when they start with a new employer.

When you add to this that many, though certainly not all, 401(k) plans aren’t very good it can be difficult to determine what are the best 401(k) investment options for you. If you’re in that position of not knowing where to start with your 401(k) then hopefully this post will help get you started investing.

Don’t Let Bad 401(k) Investment Options Hold you Back

The key to investing through your 401(k) is to know what kind of match, if any, your employer is providing. If you want to grow your wealth like I am, then the 401(k) match is one of the best ways to do that as it’s free money! How awesome is that?

That being said, there are many who face the situation of having no 401(k) match or bad investment options. My encouragement to you is not to let that hold you back from investing altogether. If there are not any decent investment options and no match then you might want to go the route of starting a Roth or Traditional IRA through an online brokerage, like Motif Investing, but I still like to see people invest in their 401(k)s in most situations. If you’re not certain what online broker to choose from, make sure to check out my list of best online brokers.

The one thing that many don’t realize is that if you do have a crappy 401(k) plan that you have the power to go to your Group Benefits department and ask for improvements. This will not always solve the problem, but it’s their job to help you and your co-workers. Tell them what you want and if those changes aren’t possible ask if they can offer a self-directed 401(k) as an alternative.

Kill the Fees

I hate investment fees. Fees can be a drag on the growth of your investments and many don’t even realize it. I’d like to think that many 401(k) plans would be free of fees, but the sad case is they aren’t. This is even worse when the 401(k) plan has only a few options to choose from. The good news though is that they’re now required to disclose the fees associated with a 401(k).

The problem is many don’t research the fees in their plans and thus end up losing out on money. If your 401(k) has funds that are high in fees then the best general option you have to take is find the funds that are lowest in fees. You may only have a few to choose from in that case, but I’d much rather have a fund that charges .50% or less as in fees opposed to one that’s charging 2%+.

This, again, is a great time for you to speak with your Group Benefits area and ask for changes. You can also use Personal Capital as they offer a free tool that analyzes your fund fees to help you see how you can find lower fee options.

Go With Major Index Funds

The other major challenge many face with their 401(k) investment options is when there are simply too many to choose from. I’ve seen 401(k) plans that offer 50+ mutual funds and ETFs to choose from. I like selection, but this can be overwhelming to someone who is new to investing.

When you’re faced with this situation, I generally suggest that people find the major, low-fee index fund options and go with those. This will, of course, vary with your specific situation, but should get you where you want. Just make sure that you’re not investing in funds that are heavily focused in the same small grouping of stocks as that will not give you true diversification.

The other option to consider in this case is some Target Date funds. People either love or hate Target Date funds. They can be great, but they can also be not so great. The idea is you select what your retirement date is and it has a pre-selected grouping of holdings. That can be good for some, but in a good number of cases they might not offer the best diversification or not fit with your investing style. As with anything related to investing, make sure you do your homework before deciding on what to invest in.

If you want to invest in your 401(k), don’t let the challenges hold you back from starting to save for retirement. A 401(k) can be a great way to begin to grow your wealth but you need to start in order to do it.


When did you start saving for retirement with a 401(k)? Have you ever had to ask your company to offer a better 401k plan? Would you invest in a 401(k) if there was no match offered?


Photo courtesy of: ©Depositphotos.com/karenr



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    • Yea, that’s a common problem that people run into. That’s why I think it’s so important for people to be educated on the offerings in the plans either on their own or through the employer. The fund may be doing great, but that extra 1% or 1.5% can seriously drag on your 401k over the long haul.
      John recently posted…Being Unprepared is CostlyMy Profile

  1. I am definitely on the side of loving target date funds, especially for people who are confused. The best thing they do for investors is set asset allocation and rebalance regularly, which is the key to long term successful investing. I also like to make sure that whatever options people choose, that they select the automatic rebalance feature which most 401k providers now offer.
    Shannon @ Financially Blonde recently posted…Music Mondays – Father and DaughterMy Profile

    • I agree, they can be a lifesaver especially for those that are new or wanting a hands off approach. That said, I’d make sure they’re allocated appropriately to your risk tolerance and such because I’ve seen a fair number of people get into one and ending up with something that just isn’t a fit at all.
      John recently posted…Being Unprepared is CostlyMy Profile

  2. Fortunately for me, I have a lot of low cost options in my 401K…they are pretty much all in Vanguard funds…mostly index funds. I also have an old “401k” when I worked in the federal government…it’s called a Thrift Savings Plan (TSP) and their costs are even lower than Vanguard I believe. So I kept the funds there and never rolled it over when I left that job.
    Andrew@LivingRichCheaply recently posted…Should Everyone Make Out a Will?My Profile

    • That’s awesome Andrew! I wish more plans were like the one you have. I spoke to a fair number of people who had old TSPs and usually advised them to keep them put, especially if it was a good chunk of money, as their fees couldn’t be beat.
      John recently posted…Being Unprepared is CostlyMy Profile


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