The Best Investments for Your 401k Retirement Plan

So, you're looking at your 401k enrollment form and thinking "what the hell is a pimco?"

Okay, we'll help you sort it all out.

There are basically four types of mutual funds you can invest in:

Bond Funds

Bond funds should not represent more than 30% of your portfolio if you're just starting out, and often far less than 30%. As you reach retirement more and more of your savings should be allocated to such funds, so that when you are ready to draw on your account you are holding over 65% of your account in Fixed Income securities.

Some common offerings in 401k plans are:

Dodge & Cox Income (DODIX)
Fidelity Government Income (FGOVX)
Pimco Global US-Dollar Hedged (PAIIX)
Wells Fargo Advantage Strategic Income (SASAX)
Vanguard Long-Term Bonds Index (VBLTX)
JP Morgan Core Bond (PGBOX)
Merrill Lynch US Government (MDFSX)

Stock Funds

Stock Funds should be a large part of your holdings when starting out, with US Large and Mid Caps being front and center. As you reach retirement, shift some of your holdings from stock funds into bond funds to avoid market volatility.

Some common stock offerings in 401k plans are:

Vanguard 500 Index (VINIX, VFINX)
Vanguard Total Stock Market Index (VTSMX)
American Century Income & Growth (BIGRX)
Fidelity Contrafund (FCNTX)
T. Rowe Price Global Stock (PRGSX)
ING Magna Cap (PMCFX)
Dodge & Cox International (DODFX)

Balanced Funds

Balanced funds can be an easy way to diversify early, but it is exrtemely important to review the prospectus to see what you're getting into. Som funds will be extremely conservative, requiring the fund to maintain a high bond profile. Others will fluctuate wildly, sometimes holding mostly stocks, other times bonds. Most will clearly define the limits within which its asset allocation can fluctuate.

Here are some commonly offered Balanced funds in 401k plans:

T. Rowe Price Capital Appreciation(PRWCX)
Pimco All Asset (PASAX)
Fidelity Balanced (FBALX)
American Balanced (ABALX)
Oppenheimer Balanced (OPASX)

Lifestyle Funds

Lifestyle funds, like the T. Rowe Price Retirement series of funds, attempt to perform proper asset allocation and diversification all by themselves. Because they are funds of funds, this method is a bit more costly than purchasing individual funds. The benefit is that you don't have to worry about shifting your allocations to more conservative investments as you get closer to retirement; the fund does it for you.

The drawback is that you have no control in your investments, because in order for lifestyle funds to work the way they should, you must invest solely in that one fund. That's a lot to trust one management firm with, and we're not prepared to recommend this as a retirement strategy for that reason.

These funds are merely examples and it is likely that they are not all in your company's 401k. Tickers may differ for different share classes, depending on what classes are offered by your company's plan. This list is for informational purposes only and does not constitute a solicitation to buy or sell, nor does a fund's inclusion in this article constitute a recommendation.

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