Here's exactly how to pick investments for your 401(k)
Use Balanced Funds for a Middle-of-the-Road Allocation Approach. A balanced fund allocates your 401(k) contributions across both stocks and bonds, usually in a proportion of about 60% stocks and 40% bonds. The fund is said to be "balanced" because the more conservative bonds minimize the risk of the stocks.
Here are five ways to protect your 401(k) nest egg from a stock market crash.
Moving 401(k) assets into bonds could make sense if you're closer to retirement age or you're generally a more conservative investor overall. But doing so could potentially cost you growth in your portfolio over time.
Withdrawing your retirement money at 28 is like creating your own personal stock market crash, even if the stock market soars. You'll pay a 10 percent early withdrawal penalty on money you take from your 401(k) plan, plus any Roth IRA earnings you touch.
Since your 401(k) is tied to your employer, when you quit your job, you won't be able to contribute to it anymore. But the money already in the account is still yours, and it can usually just stay put in that account for as long as you want — with a couple of exceptions.
That being said, although each 401(k) plan is different, contributions accumulated within your plan, which are diversified among stock, bond, and cash investments, can provide an average annual return ranging from 3% to 8%, depending how you allocate your funds to each of those investment options.
Try these strategies to help your 401(k) account grow and to minimize the risk of 401(k) losses.
A High 401k Amount By Age 50 Means Aggressive Savings
After you have contributed a maximum to your 401k every year, try and contribute at least 20% of your after-tax income after 401k contribution to your savings or retirement portfolio accounts.
For most people, the 401(k) is the better choice, even if the available investment options are less than ideal. For best results, you might stick with index funds that have low management fees.
While 401(k) plans are a valuable part of retirement planning for most U.S. workers, they're not perfect. The value of 401(k) plans is based on the concept of dollar-cost averaging, but that's not always a reliable theory. Many 401(k) plans are expensive because of high administrative and record-keeping costs.
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