What you really need to know

When it comes to 401(k) fund options, more can be less when it comes to your ability to make good investment choices.

It’s true that employers have become more generous with the number of options they offer in 401(k)s. According to recent information, investigation, “In 2020, the average large 401(k) plan offered 28 investment options, of which approximately 13 were equity (stock) funds, 3 were bond funds, and 9 were target-date funds.”

The study, published by Brightscope and ICI, breaks down your options into several investment types.

• In the 2020 sample, mutual funds held 40% of large private sector 401(k) plan assets.
• Collective investment trusts (CITs) accounted for 38% of assets.
• Guaranteed Investment Contract (GIC) holds 6%;
• The special account held 3%, and the remaining 12% was invested in individual stocks (including own shares), individual bonds, securities trading, and other investments.
• Index funds make up a significant component of 401(k) assets, holding 41% of 401(k) assets in 2020. Index funds are widely available in all plan sizes.
• In 2020, more than 95% of 401(k) plans with plan assets greater than $10 million offered index funds in their plan lineup, while 86% of 401(k) plans with plan assets less than $1 million offered index funds. .

Are more options good or bad for 401(k) savers? More isn’t always better if they cause choice anxiety and bad decisions.

When you look at your 401(k), you realize it’s like standing in front of a buffet. What do you consume? It’s a difficult choice that leads to the wrong decision. I will focus on her three goals:

1. Look carefully at your expense ratio. Using the lowest cost index funds will save you the most money over the long term.
2. Diversify widely. You need an index fund that invests around the world. If your employer offers “worldwide” stock or bond index funds, those are an easy choice. As Vanguard founder Jack Bogle once said, “Why choose individual funds when you can own the entire basket?”
3. How long will it take you to retire? People nearing retirement should have lower overall risk in any market. The older you get, the lower the risk, but be careful with your spending. You may also consider target date funds. Some can be very expensive.

Whatever you do, seek sound advice on what is best for you and your situation.We recommend hiring Fee-only fiduciary certified financial planner If you are unable to obtain personalized advice through your employer.