What Are the Best Investments for Retirement?

A 401k is just an investment vehicle - an account. Similarly, an IRA is just an account, as is a brokerage account or a savings account at your bank.

What goes into the account is just as - if not more - important as what type of account it is.

Invest Your Age

What you should invest in - stocks, bonds or money market funds - is entirely dependent on you tolerance for risk:

When you're just starting out and have 30 or 40 years before drawing on retirement accounts you have a high tolerance for risk.
When you're about halfway to retirement age, your risk tolerance decreases, since you don't want significant losses against the gains you've earned.
When you're approaching retirement you have little tolerance for risk, since you don't want a sudden market "correction" or crash to wipe out your nest egg.

Your tolerance for risk determines what you will invest in:

Stocks are risky, but they offer the best opportunity for growth
Bonds are less-risky, but will likely yield less than stocks
Money market accounts are the least risky, but offer little to no growth potential above inflation

So, if you're just starting out, you should invest a large chunk of your retirement money in stocks, with a more moderate allocation in bonds to offset any market volatility.

Every 6-8 years you should adjust your allocations so that more of your retirement savings is in bonds, and less is in stock holdings. Gradually, your bond holdings will become a more significant portion of your retirement savings. As a result, your nest egg will be well shielded from a stock market meltdown because of its significant bond holdings.

Why You Shouldn't Worry About a Stock Market Crash

You really shouldn't. Not if you diversify properly to begin with.

However, if you're ten years from retirement and 80% of your savings is in stocks, then you should not worry, run.

There is no time to worry: get to a financial advisor and reallocate immediately.

It should have been done years before, gradually, but you really should be mostly in bonds as you approach retirement.

If you're 30 years old and the market tanks, taking with it 50% of your retirement savings, you're young yet. The market will rebound and such a crash may be an excellent buying opportunity.

Bottom Line: Proper asset allocation leads to worry-free investing.

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Department of Labor on 401(k) Fees

FCIC about 401(k)

Morningstar

What Are the Best Investments for Retirement?

Invest Your Age

Why You Shouldn't Worry About a Stock Market Crash

401(k) Center

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