Enhancing Your 401(k)

Most people don’t make the most of their 401(k) plans. They rely too much on the advice of the plan custodian or the default rules set by the plan. They also don’t fully understand the investments and other options offered by the plan. Improve your 401(k) account to start the year. Read this piece with key pieces of advice and solid information about 401(k) plans. It probably all doesn’t apply to you and your plan, but take away what will improve your financial situation.

Take a careful look at those target funds. The theory behind target date funds is that younger investors can afford to take more risks than older investors. These funds, sold as single-fund answers to retirement investment questions, mix a multitude of investments into a single fund, with the allocation pegged to the risk profile of the age group it is aimed at. So, for example, a target date 2040 fund would be aimed at workers roughly 40 years old and slated to retire in another 26 years.

But they are complex instruments. Some target date funds have higher fees than other funds, because they are essentially funds of funds. Some may be too conservative – putting too much money into bonds, for example – and some too risky – making big bets on stocks – for the tastes and situations of individual investors. And they may be insufficiently diversified as well.

But “target funds are continuing to get better and better,” says Alfred. They are lowering their costs and adding additional asset classes like commodities and real estate to their mixes. So – check your target fund. See if it compares favorably to the rest of your 401(k)’s offerings. If you like it but think it is too risky or not risky enough for you, you can switch to a fund with a different target date – aiming younger or older than you actually are – until you get the risk profile right.