Retirement Plan
What criteria should one identify when selecting investments within a 401(k) at work?
What criteria should one identify when selecting investments within a 401(k) at work?
What asset class or classes do you want to own and what do they cost? That is the simple answer, but as usual, there is more to the story. The asset class? Stocks (equities), bonds (fixed income), Real estate (REITs), and cash (Money Market) are the big four. Cost? What is the expense ratio (the fee that goes to the mutual fund company and possibly others) on each mutual fund you are considering?
Here are a few basics. Focus on owning a total stock index fund that owns the entire U.S. market when possible. Add in an international index fund when it works. Finally, consider a bond index fund and a REIT index fund AS YOU CONSIDER ANY OTHER INVESTMENTS YOU OWN OUTSIDE YOUR COMPANY RETIREMENT PLAN. The index funds will keep your costs as low as possible whether you have a good plan or not.
What is not important? The past returns on those funds and the star ratings mean absolutely nothing. Just ignore that noise. This means NOT chasing past performance. It gives you no information on what fund to select and that is important to know. Focus your efforts on owning broad market funds (hopefully index funds are offered, if not, contact HR and demand it) that own stocks and bonds in the right mix that fits your time horizon, risk tolerance and goals.
Feed those accounts (strive to go heavy on stocks through much of your working life when possible for maximum growth over time) as much as you can month after month and year after year as you watch the amazing thing of compound interest do its magic. Learn more on this subject by reading What Color is the Sky. Education followed by action will set you free. Believe in that and believe in YOU.