Help Center
Making informed investment choices in your 401(k) plan is crucial for building your retirement savings. You'll need to consider diversification, assess risk and reward, choose between passive and active management, and understand how to change your investments when necessary.
Diversifying Your Investments
Diversification means spreading your investments across various asset classes, such as stocks, bonds, and mutual funds. Doing this can lower risk because it reduces your exposure to any single investment. For example, if one stock loses value, others might gain, offsetting the loss. Many 401(k) plans offer a range of investment choices that make it easier to diversify your portfolio.
Using investment resources can help you understand which options are available. Aim to include a mix of domestic and international assets to further reduce risk. Regularly review your allocation to ensure it aligns with your financial goals and risk tolerance.
Understanding Risk vs. Reward
Every investment comes with some level of risk, but higher risks often correlate with the potential for higher returns. For example, stocks are generally riskier than bonds but may offer greater long-term gains. Understanding this balance can help you make better choices. Younger investors might handle more risk since they have time to recover from losses.
Evaluate the funds within your 401(k) and compare their risk levels. Tools like risk assessment questionnaires can provide insights into how much risk is acceptable for you. Always be sure to align your investments with your retirement timeline and comfort level.
Passive vs. Active Management
Passively managed funds, such as index funds, aim to mirror the performance of a specific market index. They often come with lower fees and can be a cost-effective choice. Actively managed funds, on the other hand, involve a financial manager making investment decisions to outperform the market, usually at a higher cost.
Deciding between passive and active management depends on your investment philosophy and goals. Some investors prefer the stability and lower fees of passive funds, while others may seek the potential for higher returns through active management. Review both options to fit your strategy and financial target.
Changing Investment Options
Over time, you may need to adjust your 401(k) investments to stay aligned with your goals. Factors like market changes, financial needs, or nearing retirement might prompt a reevaluation. Most 401(k) plans let you change your asset allocation or switch funds online or through a plan administrator.
Check your plan’s specific guidelines for making investment changes. Keep in mind that frequent changes might incur fees or negatively affect returns. It's essential to remain informed about your plan's rules and industry trends so adjustments are beneficial and strategic.
Contact us for more information.
Phone: (480) 364-7401 | Email: hello@cognisgrp.com | Request Free Consultation