July 28, 2013

When reviewing your 401K options, what type of investments should you consider? Why? What should you avoid?

2 thoughts on “July 28, 2013”

  1. Katherine Graham says:

    You should consider Small Capitalization Funds (S Funds), Large Capitalization Funds (C Funds), International Capitalization Funds (I Funds), and Balanced Funds (Life-Cycle Funds). S Funds have generally provided one of the best returns on your money (10-12%), C Funds have generally provided a solid return on your money (8-10%), I Funds have generally provided very good returns over long periods of time (10-12%), and Life-Cycle Funds should provide you with a decent return over time (6-8%). You should avoid Bond Funds (F Funds) and Money Market Funds (G Funds). F Funds are generally lucky to stay up with inflation (you should expect returns of 3-6% over time) and G Funds will produce very small returns over time (2% a year).

  2. Mike Finley says:

    Your research abilities are impressive, Katherine. Well done. Let me add a bit more. When looking at your 401k options, focus your efforts on finding broadly diversified index funds and/or target date or lifecycle funds that contain index funds. The key word here is index. These type of funds will keep your costs very low. Focus on the expense ratio prior to selecting a particular fund.

    Once you identify the really cheap index funds, focus your efforts on the most widely diversified index funds. If you see a fund that says something like total stock market index fund, that is the one you want to jump on. You are basically buying into the globe as you diversify over the entire United States economy and the international economy (many large corporations in America make half if not more of their profits from places outside of America).

    What should you avoid? High fee managed funds that tend to dominate most 401k accounts. Why is that? The institution offering them make far more money with those type of funds than the very cheap index funds. You can learn more on this subject by reading John Bogle’s wonderful book, The Little Book of Common Sense Investing. It’s worth your time and your money. Education followed by ACTION will set you FREE!

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