A 401(k) is a common savings tool for many working Americans. It’s an easy way to save and generally comes with the benefit of employer matching. But are you really clear on where your money is invested and if it’s the optimal place for your stage in life?

 

It’s time to look at the makeup of most 401(k)s.

 

Mutual Funds and, more recently, Exchange Traded Funds (ETFs) are the most common investment options found in a 401(k) package. And within these, the options range in risk level, helping you decide which options to choose. As your life changes—be it age, income, or family size—so can your 401(k), so take time to review it occasionally.

 

Conservative Funds: Need an investment option that minimizes risk? Start here. These funds are typically predictable and slow-growing, offering some level of confidence that your money will be there when you need it.

 

Value Funds: Start in this category if you’re interested in a business offering dividends. These funds are typically comprised of undervalued companies that need investors that are willing to accept a level of risk and are looking for a dividend when the business succeeds.

 

Balanced Funds: This is your middle-of-the-road option that puts your money in a variety of both stocks and bonds. The higher-risk stocks are balanced out by the conservative bonds making this less risky while still encouraging growth.

 

Aggressive Growth Funds: If you’re in a place in life that’s able to jump on a rollercoaster ride in hopes of a payout, then the high risk with these funds might be your place to focus. These funds take a leap of faith, and sometimes you see a big payday but be prepared for the loss if the company crashes unexpectedly.

 

Specialized Funds: If you like to cherry-pick from a list of particular industries, then take a peek at the ones offered in your 401(k). From innovative tech to big pharma, you can select the market that interests you most—it just might be worth keeping an extra-watchful eye on the specific companies included.

 

Target Date Funds: If you have a retirement date in mind, then this option may allow you to maximize your investment based on that timeframe. The fund automatically rebalances investments moving away from high-risk and closer conservative funds as you approach your retirement date.

 

 

Adapted from Investopedia1

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1 https://www.investopedia.com/articles/personal-finance/091515/best-strategies-maximize-your-401k.asp