How to invest in a 401K account?

Most company 401K accounts offer a number of Mutual Funds for you to choose from. One of the common Mutual Funds is called Target Day Fund, which is actually a fund where the fund company sets the investment portfolio according to different retirement ages. For example, Target 2045 Fund is a portfolio that is expected to retire in 2045, usually 60% - 70% Equity and 30% - 40% Bond in this fund. In addition, Equity will also have different percentages of domestic stocks and international stocks to diversify the risk. Investing in such funds is a lazy investment method, letting the fund manager do it for you.

In addition to the Target Day Fund, the company's 401K fund usually also offers Money Market Fund, Bond Fund, Big Company Stock Fund (S&P500), Medium-Small Company Stock Fund, and International Company Stock Fund. International Company Stock Fund, and so on. I prefer not to use Target Day Fund, but to choose my own fund to build my portfolio. The reasons are as follows.

First of all, Target Day Fund's fund management fee is higher. Because the fund company has to help you choose the portfolio and rebalance regularly, these services have to charge expense.

Secondly, if you choose Target Day Fund, you are taking the fund company's portfolio as it is, which is not flexible from the investment point of view.

Therefore, I prefer to choose from other funds to form my own portfolio. Before choosing, you can research the management fees and historical returns of each fund. Besides, everyone has different retirement time and different risk tolerance, so it is important to choose the right portfolio for you. For example, a friend of mine has 20 years to retirement, and if she chooses the Target Day Fund, 40% of her money will be in a Bond.

Considering that she has other savings accounts and even if she retires, she will not take all the money out of her 401K account at once, so she chooses a more aggressive 401K portfolio, putting 90% of her money in the equity fund. Here we can see that if you have some knowledge of investment management, you can choose different funds for your portfolio rather than buying Target Day Fund, which is more suitable for each person's different situation and investment goals.

When you set a good proportion of the portfolio, such as large-cap index funds 50%, Medium-Small Company Stock Fund 20%, Bond Fund 30%, it is recommended to rebalance back to their own target portfolio every once in a while. As mentioned in the previous article, it is not recommended to switch your 401K to Money Market Fund when the market plunges, because it is difficult to predict the market direction. However, it is advisable to rebalance every once in a while to help you control your position and to buy low and sell high.

Finally, a tip, if you encounter this year's special situation: in the first half of the stock market fell 30%-50% at once, you can adjust the proportion of 401K account contribution, increase the investment of money, so that you can buy more funds at low levels, the stock market once the rebound will have a rich profit. Of course, this also has the risk of timing the market, the benevolent, the wise to see the wisdom.

I hope we can all make good use of our 401K accounts!