From
Your Perspective:
Early bird retirement investing
Allocating your
401(k)
Since 401(k)s are usually self-directed plans,
you’ll be able to control how your money is invested among
the choices your plan offers. Mutual
funds are the most common offerings in 401(k) plans.
The menu varies from company to company, but you’ll always
be able to choose between at least a few funds and other investments.
You should think carefully about asset
allocation, or how you divide your money among mutual
funds that invest in different asset
classes. Asset classes are groups of investments
like stock and bonds that produce earnings in different ways.
Since you’re investing for the long haul, many experts recommend
that you take a fairly aggressive approach to the market and
invest primarily in funds that focus on stocks.
Another thing experts advise for any investor
is that you diversify,
or spread your investment among different kinds of funds within
each asset class. That way, if a small-cap
stock fund has a bad year, for example, your losses
may be offset by gains to a large
cap stock fund, a balanced
fund, or an international
stock fund in which you hold shares.
If you work for a publicly
owned company,
you might be offered the
chance to own stock in your company as part of your
401(k), and your employer’s matching contribution may be made in stock. While it can be a good way to share in the
profits you help to create, be careful not to depend too much on the
stock of one company. If the price tumbled, your retirement savings —
and your job — could be in jeopardy.
