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401(k) Fact |
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A 401(k) plan fiduciary is legally responsible for selecting the plan's investment options and monitoring their suitabiliy. |
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A 401(k) portfolio is a collection of investments you assemble by selecting among the choices your plan offers when you make your initial contribution.
You can make changes to your portfolio as investment alternatives are added to your plan, as you get closer to retirement, or as the performance of certain investments, or the economy as a whole, gets stronger or weaker. You can also move money from one investment to another without owing income tax on any gain in value, and in most cases there is no penalty for transferring out of an investment. But if you own stock in your employer’s company in your 401(k) portfolio, you may not be able to sell it for a certain period of time or until you reach a certain age.
Three key factors affect the type of investments you choose for your portfolio:
- Your age—The closer you are to retirement, the more of your portfolio you may want to shift into investments that are designed to preserve your capital and provide regular income.
- Your risk tolerance—The more willing you are to take the risk that your portfolio value will rise and fall with the markets, the more you may invest in equities, such as stock mutual funds. The less willing you are to take that risk, the more you may emphasize investments that provide a regular return.
- Your other retirement assets—If you have other sources of retirement income, such as an IRA, a pension, or investments, you may want to invest your 401(k) contributions to achieve greater diversification in your overall portfolio. That might mean concentrating on growth investments if your other sources will provide a fixed income, or vice versa.
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