Top 26 Ways to Manage Your 401K Investments From the Pros

1. Diversify Your Assets

The saying “don’t put all your eggs in one basket” applies to your 401k and is key for investment diversification.

Look to diversify by choosing funds from different asset classes such as U.S. stocks, international stocks, and bonds, rather than different funds from the same asset class (e.g. 2 U.S. large stock funds). Many people mistakenly attempt to diversify by investing in every fund that’s offered in their 401k.

2. Max Out Your Employer’s Matching Contribution

Max out your employer’s matching contribution to get the most benefits of your retirement account. Most employers will match the employee’s contribution up to a certain percentage.

Employees should ensure they plan their contributions to take advantage of as much money as the employer will provide in a match. This is free money that should not be left on the table.

3. Invest Aggressively, Particularly if You are a Younger Employee

A significant part of your retirement funding is coming from Social Security, which is essentially an investment at a low-risk, fixed-return.

Given this “base,” it makes sense to take significant risks with the 401k. Invest in growth stocks or the growth equity portfolio offered by your plan. Invest sensibly, though, and make certain that your investment is across a diversified set of stocks.

4. Use Non-Revenue Sharing Fund Share Classes

Qualified plans, including 401k plans, give employers access to much lower cost funds than individual investors. How much? Investing in the same fund as an individual could cost you as much at five times the fees of what 401k plans can use.

If your plan isn’t using them though you are just paying more for the same product, then those fees are literally stealing from your retirement.


5. Focus on Low-Cost Investing

You should choose low-cost mutual funds with good long-term track records to invest in and create a plan as to when to reallocate the funds.

This could be on a set basis such as twice per year or a certain date of the year, or it could be when your allocation breaches a threshold (i.e. your equity allocation increases above 5% of your target).

The markets have been going down recently and the media tends to overplay the magnitude of this which leads investors to panic and make moves within their portfolios when they really shouldn’t. Just remember, historically, markets have gone up the majority of the time. Selling out at the wrong time and not getting back in as the market continues to rise could cost you a lot.

6. Roll Over Your Existing Retirement Account into Your 401k

When you’re tasked with establishing a 401k account, consider rolling over your existing pensions, IRAs, or other tax-deferred retirement accounts into the new 401k. When you’re doing a rollover, leave the transfer to the professionals and choose a trustee-to-trustee rollover.

The trustee-to-trustee transfer moves your money directly to another provider without having the money paid out to you in the middle.

The trustee-to-trustee transfer is not treated as reportable by the IRS and no penalties or taxes are incurred. The trustee-to-trustee transfer is easy to do, simply instruct the old plan trustee or administrator to make a wire transfer into your new rollover account.

7. Increase Your Contributions Every 6 Months

Set a calendar alert to increase your 401k contribution percentage by at least 1% every six months. Even as our income rises, our contribution percentage tends to stay the same.

Instead, make it a habit to increase your contribution rate regularly. And by doing so in small increments, you won’t even notice it’s gone.

8.  Your Contribution, Time, & Investment Selection

The success of a 401k is built on three principles: money in, time, and investment selection. Most people spend too much time worrying about investment selection and not enough time to worry about the amount of contribution.

It is critically important for plan participants to understand that compounding is impactful only when dealing with longer time frames.

It is for this reason that qualified (or tax-preferred plans like a 401k) be started early in one’s career.

The best way to get the most out of a 401k regardless of employer size is to start early, defer 15% of your income, and avoid taking any loans or distributions prior to retirement age.

9. Auto-Escalate Your Contribution to Drive Your Savings

Escalate your contributions to drive your retirement savings. Research shows people need to save at least 10% to 20% of annual income to enjoy a comfortable retirement.

You may select a default rate of around 8% or 10% and have your recordkeeper “auto escalate” to save 1% or more each year.

10. Use a Target Date Fund to Achieve a Properly Diversified Portfolio

Target date funds (TDF) provide an easy-to-use solution that takes the guesswork out of optimizing retirement savings investments.

A TDF is a mixed-assets investment vehicle designed to simplify the investors’ need for a defined amount of capital at a future target date, such as retirement. Typically,

TDFs are structured to appropriately allocate assets according to an investor’s age and risk level, and automatically adjust the risk level of assets over time, becoming more conservative as they near their target date.

A TDF can be very helpful for achieving a properly constructed and managed investment portfolio. It works well for the majority of participants who do not want to make their own allocation decisions.

11. Use a 401k as a Savings Account – Not an Active Trading Account

It’s important to not get too caught up with the fluctuations of the market and the immediate effect it may have on your 401k.

The economy is very complex – it always goes up and goes down – but generally has an overall growth trend when you look at it with a long-term perspective.

Even if we have a recession and the market is way down, it’s important to not stress over it and to stay in the game because it always gets better. Remember, it’s a long-term game, not an active game.

12. Hire a Plan Advisor to Help With 401k Setup

The best way for a small business owner to manage their 401k plan is to have a plan advisor to help with the set up of their 401k investments.

Managing defined contribution plans can be a daunting responsibility that includes fulfillment of obligations to participants, extensive recordkeeping, investment selection, and a variety of decisions on service providers and plan design.

With many factors to consider such as fiduciary process management, it’s best to seek partners with specialized expertise and an independent perspective to help navigate countless choices.

13. Choose a Low-Cost Index Fund

Managing your 401k should be easy. You should be able to set it and forget it. The number one tip to managing your 401k is choosing a low-cost index fund,

if they are available, through your employer. Your investment choice, specifically when it comes to fees, can dictate how much you are able to earn over the lifetime of your account. Choose a low-cost fund and reap the rewards in the future.

14.  Moderate Asset Allocation

A common mistake made by too many people is to be too conservative in their retirement investments. If you have ten or more years until your planned retirement age, you should consider at least a moderate asset allocation.

Typically, this means a 60% to 70% allocation to growth-oriented investments such as stocks and real estate, and 30% to 40% in income-oriented investments such as bonds and money market funds, stable value funds, or other cash equivalent fund.

Be sure that this allocation is reviewed regularly and periodically rebalanced to your original target allocations. Some plans offer an automatic rebalancing feature which can do this for you.

15. Find Out How Much Downside Risk is in Your 401k

As 401k participants, you should learn how much downside risk is inside of your 401k account. Stress test it against 2007-2009 -53% S&P 500 rout.

There are tools in the industry to do this. These tools will help you understand the risks in your investment portfolio and how much rate of return the index delivered.


16. Contribute Appropriately for Your Age Bracket

There isn’t one blanket contribution amount that works for everyone. Take advantage of retirement calculators available online, and through a financial wellness program if your company offers it.

Technology allows individuals to easily and accurately understand where they stand currently, and where they will be at retirement based on current savings and earnings behaviors.

Depending on when you plan to retire (it can be a stretch goal!), you can contribute appropriately to set yourself up for a solid, post-retirement future.

17. Your Retirement Timeframe & Risk Tolerance

Your timeframe to retirement and risk tolerance should determine your investment allocation. Generally, the farther you are from retirement, the more stocks you should hold in your 401k because you have the time to weather the volatility.

As you get closer to retirement, you may want to move along the risk spectrum toward fixed income to minimize risk of investment loss. But make sure your allocations reflect you, not based on the experience of others.

Some will advice you not to invest in the stock market because it’s quite risky – but there is an opportunity cost of staying out of the stock market and you may lose out on some big potential growth.

Allocate your investments according to your risk tolerance and timeframe to retirement.

18. Leverage a Roth IRA along with your 401(k)

Depending on your income level, you may be able to leverage the high contribution limits on 401ks, and the unique tax benefits of a Roth IRA.

This adds a measure of liquidity and flexibility to your overall retirement savings plan. Why? All Roth IRA contributions can be withdrawn tax-free and penalty-free at any age, and with no restrictions. So,

while it’s a good idea to leave your Roth IRA account intact for maximum tax benefit, your Roth IRA contributions can serve as a “contingency fund” in the event of a large, unexpected expense.

This may be a better option than taking a loan from your 401k to cover a financial emergency. Not able to max out both your 401k and Roth IRA? Consider contributing just enough to your 401k to ensure you get 100% of any company match, and then turn your savings to your Roth IRA.

If you still have money to save, having maxed out your Roth IRA contributions, you can turn your attention back to your 401k contributions.

19. Develop a Solid Plan for Your Investments & Stick to it

Develop a solid plan for your investments and stick with it. Employees that make frequent changes to their investments tend to do worse than those who buy and hold.

Try your best to avoid emotional investment decisions based on something you see or hear in the media or from relatives, colleagues, or friends.

20. Mind Fund Costs

All of the investments available within a 401k will have their own costs. These most commonly take the form of fund expense ratios for any mutual funds or ETFs available through your plan.

When you’re selecting your investments within the plan, be sure to consider the annual expenses of each option. These annual costs can add up to make a big difference over time, so focusing on cost-effective investing can have a big impact in the long run.

21. Consider Target Date Funds

If you don’t want to do the actual review and rebalancing of your investment, MoneyTalksNews suggests that you consider the target date funds.

This is a popular type of mutual fund that takes a lot of the work out of investing. Target Date Funds allows you to choose the date when you want to retire and the fund is designed to rebalance your asset allocation over time based on your retirement target date.

22. Review Account Statements

Your account statements are a good source of information to check how your investments are performing. You may get a copy of your account statements either quarterly or monthly, or you may also access them online.

Financial Industry Regulatory Authority suggests that you review your account statements thoroughly to ensure that your portfolio is balanced and well-aligned to your financial goals.

23. Don’t Tap Your 401k Before Retirement

One important advice from is to avoid taking out loans and hardship withdrawals out of your 401k account.

Taking out money out of your 401k before retirement may reduce the benefit of tax-free compounding which is essential in building your retirement funds. Consider other alternatives first before you decide to take out an early withdrawal from your 401k investment.

24. Know Your Company’s Vesting Schedule

According to The Motley Fool, vested retirement accounts mean you have the complete ownership of all the money in that account.

As many companies have vesting schedule, it’s important to know what this schedule is especially if you consider leaving your job. If you leave your job before your vesting is complete, any unvested employer contributions are forfeited.

25. Improve Your Investment Knowledge

The College Investor believes that improving your knowledge about investing is a great way to learn how to better manage your 401k investments.

There are several online resources about investments as well as investing courses you can join. If you have sufficient and updated knowledge about investing and retirement planning, you’ll be more confident in managing your own portfolio.


26.Rollover if You Change Companies

If you’re planning to leave your job or transfer to another company, InvestmentZen suggests a rollover instead of just leaving your money in your existing 401k account,

especially if your former employer charges you with maintenance fees. Just make sure that the check from your old 401k is made out to the company you’re rolling it over to and not to you.

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