Ways to Allocate Your 401k Investments
Determine what your risk tolerance. Probably the easiest way to gauge this is to know how many years you have until retirement. If you're 30 plus years away, your risk tolerance is most likely greater than that of someone who has just a few years remaining.
A higher risk portfolio usually consists of a mix of large cap, mid cap, small cap and foreign funds. Some recommend a distribution of 40 percent large cap, 25 percent mid cap, 15 percent small cap and 20 percent foreign funds. If your plan happens to offer several funds for each category, check the Morningstar ratings to determine your best investment choice.
If you're within five years or so of retiring, consider allocating most of your 401k investments to bonds and money market funds, leaving no more than 30 percent in stocks. Many people make the mistake of maintaining a high risk tolerance too close to retirement, only to lose a substantial amount of money.
Patrick Harwood
Patrick Harwood has been a professional writer and editor since 2004, specializing in articles about spectator sports, personal finance and law. He has contributed to family of magazines and websites.
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