Getting the most out of your 401k plan

“Hi, I’m Janet. I’ve been interested in starting a 401K fund for my retirement. However, I’ve heard that there are several types of 401k funds and this has gotten me confused. Could you please tell me about different 401k fund options and how they are advantageous to me? Waiting to hear from you.”

Janet, West Palm Beach, FL

Good to hear from you, Janet. Also, it’s a great thing that you’ve decided to start investing in a 401K fund. A 401K is a simple way to start saving for your retirement. However, as you asked, it can be quite confusing when it comes to choosing from various types of 401K funds. Plus, employers offer their own range of funds and they name them in such a way that even similar funds sound different.

However, what you need to be aware of is that there are some basic and common funds. These are the ones you’ll come across the most and as long as you invest in any of these funds, you’re all set for the future.

Target-date funds

These are simple funds that come with a target date. The target date referred to here is the actual date on which you expect to retire. For instance, if you intend to retire in 2045, you can invest in these funds and just let them sit until you actually reach the retirement date. The asset allocations are adjusted automatically, preventing the need for rebalancing from your side. It’s a hassle-free investment option. However, there may be some extra costs and fees involved, which you need to watch out for.

Target-date funds can be rigid as well. You won’t have too much room to flex around in terms of risk.

Stock funds

Stock funds encompass a variety of stock types. You can either choose funds with small stocks or opt for funds with bigger and more established ones. You can go for international stocks as well. However, make sure you research all your stock options as you are better off investing a majority of your savings here. Ideally, most of your savings should go to stocks and the rest towards bonds.

Money market funds

The fund is basically a better version of a CD and serves as an alternative option to cash. However, the problem is that the rate of returns is limited to 1 percent per annum, which means your money does not grow with the fund. So it is best to avoid money market fund, unless you already have a substantial amount of savings, which just need a safe place to be kept in.


It is like a combination of a target-date fund and a stock fund. However, a blended fund has a fixed stock-bond ratio, which is usually 50/50. So, 50 percent of your funds go to stocks and the other half goes to bonds. If you’re an aggressive investor, blended-funds are not for you. On the other hand, they are a great option for conservative investors.

Bonds/Managed income

These funds preserve your capital. You can expect little growth with these funds. However, if you have a sizable amount saved up and just want to protect the investment, with some basic growth to go along with it, then you can probably invest here.

So, Janet, we hope we’ve answered your question. However, if you want more detailed answers, please refer to the site: The 401K Easy website contains detailed answers to all your 401K related questions and concerns.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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