How do you choose the investments for your 401K?

[Anonymous]

I'm signing up for my company's 401K for the first time. I'm 35 with no retirement savings and am clueless about investing. Should I invest all of it in a target date fund or spread out what I invest in? I see that a number of the large and mid cap funds have done well. Should I do 50% target date and 50% in those? Am I charged if I want to change my investment allocations? Any advice appreciated - I'm truly clueless about this. Thanks

[Anonymous]

Generally the advice is not to spread across a target date fund and another fund, because the whole point of a target date is to give you the right balance among different kinds of assets, so you'll frustrate that goal if you have a lot of money in other funds.

It is also generally not a good idea to invest in things that have done well recently-- that's a good recipe for buying high and selling low.

All things being equal I would probably put it all into the target date fund.

Things to consider are the expense ratio (generally as low as possible is better, 0.2-0.5% is ok, over 1% is pretty bad), and how much is in stocks vs how much you think you will freak out if you open your statement and see you lost 25% or 35%.

Over the long run, stocks do better, but they are more volatile, so you probably want somewhere in the range of 10-30% invested in bonds too.

[Anonymous]

13:29 gave good advice.

OP, if you are really clueless, your best bet is to use these target-date funds.

A target-date fund will change the ratio stocks-to-bonds over time: closer to your retirement there will be more money in bonds which are safer (but have a lower return).

[Anonymous]

Just do a target date fund unless you have the energy to find out more.
Invest in funds with the lowest expenses.

[Anonymous]

I would put it all in a target date fund. The important thing for you is to get going, keep going, and to make the most of the opportunity to save.

After those important first steps, then I would take time to just read up on it without any further changes or actions. There's a lot to know, but a lot of it is sales and marketing and you would need time to see the difference on know which is good advice and which is just trying to sell you something.

[Anonymous]

For a newbie, go with indexed funds. Take the Roth 401K if offered by employer and you can afford to.

[Anonymous]

Anonymous wrote:For a newbie, go with indexed funds. Take the Roth 401K if offered by employer and you can afford to.

Someone who has no retirement funds is almost certainly better off putting as much as they can into a traditional 401k than using a Roth 401k.

[Anonymous]

Another vote for index funds. Target date funds typically have very high expense ratios.

[Anonymous]

Anonymous wrote:13:29 gave good advice.

OP, if you are really clueless, your best bet is to use these target-date funds.

A target-date fund will change the ratio stocks-to-bonds over time: closer to your retirement there will be more money in bonds which are safer (but have a lower return).

+1 Some of us here could give you advice based on more particular life circumstances and recommend stock, bond, other asset class splits but your best bet is to put it all in a target-date fund.