Besides deciding how much money to contribute to your 401(k), you also need to decide how it should be invested.
Ask your financial advisor to review the investment options available in your employer’s plan. To keep costs low, most company plans offer limited investment options. However, they usually offer at least a few mutual-fund choices in each major asset class, such as bonds, large cap equities, and money market funds.
Plans should provide information about each of the funds available. Research investment options and 401(k)s using sites such as www.finance.yahoo.com; or at www.money.cnn.com, under “Personal Finance” select “Money 101” for Lesson 23. Recheck plan allocations at least once a year.
The closer to retirement you are, the more conservative your portfolio should be, meaning investment choices with less risk of losing your investment. However, there is no right or wrong asset mix. It is a matter of each person’s risk tolerance, financial situation, and time until retirement.
The most important question you should ask is this: “Will this asset mix cause me to lose any sleep at night?” If you answer “yes,” you are investing too aggressively.
For more financial help and advice download the 2011 Kentucky Living Financial Planning Guide.