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What Are the Safest Investments for a 401(k)?

By

澳洲幸运5开奖号码历史查询:Carrie Pallardy

Updated July 16, 2024

Reviewed by

Samantha Silberstein

Fact checked by

Jiwon Ma

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Contributing to a 401(k) can be an important part of saving up for retirement. Typically, you won’t 澳洲幸运5开奖号码历史查询:withdraw funds from your 401(k) until you reach the age of 59½, which means these employer-sponsored retirement aಌccounts have years, often decades, to gro🎶w in value.

You can choose from a number of different investment options, such as stocks and 澳洲幸运5开奖号码历史查询:mutual funds. Some people have a higher 澳洲幸运5开奖号码历史查询:risk tolerance and opt for 澳洲幸运5开奖号码历史查询:aggressive investment options in hopes of reaping higher returns. Other people prefer a more 澳洲幸运5开奖号码历史查询:conservative approach✨ that minimizes risk to their 401♌(k) value. Risk is inherent to investment, but some 401(k) options remain relatively stable over time.

Key Takeaways

Many employers offer their employees the option to choose the types of investments in their retirement accounts. If you prefer a risk-averse approach to investment, you can choose some safer options for your 401(k).
Lower-risk investment types can help maintain the value of your 401(k), but it is important to consider that 澳洲幸运5开奖ꩲ号码历史查询:lo꧟wer risk usually means lower returns.
Bond funds, money market funds, index funds, stable value funds, and target-date funds are lower-risk options for your 401(k). Each investment type has its own risk profile to consider.

Bond Funds

澳洲幸运5开奖号码历史查询:Bond funds are a type of pooled investment vehicle for 澳洲幸运5开奖号码历史查询:debt securities. Bond funds typically focus on a particular type of bond, such as 澳洲幸运5开奖号码历史查询:government bonds. Some bond funds are broad, while others opt for a narrower focus. Risk levels vary depending on the type of bond fund you choose, but bond mutual funds are usually considered a more conservative investment than stock mutual funds.

Bond funds that focus on government bonds, such as 澳꧋洲幸运5开奖号码历史查询:Treasury i🅠nflation-protected securities (TIPS), are considered one of the safest options. TIPS are a very low risk because investors receive either the adjusted principal or original 澳洲幸运5开奖号码历史查询:principal, whichever is the larger amount. The return potential is relatively low, but you will never receive less than what was originally invested.

Money Market Funds

澳洲幸运5开奖号码历史查询:Money market funds mitigate risk in a 401(k) by maintaining a stable value. This type of investment is meant to offer a high level of 澳洲幸运5开奖号码历史查询:liquidity with a low level of risk. Like bond funds, money market funds invest in debt securities. Money market funds are grouped into three categories: government, prime, or municipal investments. Like other lower-risk investments, the returns on money market funds tend to be lower.

Index Funds

澳洲幸运5开奖号码历史查询:Index funds help to diversify investment portfolios with broad market exposure, decreasing risk. An index fund is a kind of mutual fund. 澳洲幸运5开奖号码历史查询:Exchange-traded funds (ETFs), sometimes found in 401(k) investment lineups, are a type of index fund. Index funds aim to track the returns of a market index, such as the 澳洲幸运5开奖号码历史查询:S&P 500 Index or the 澳洲幸运5开奖号码历史查询:FT Wilshire 5000 Index. This type of fund is considered 澳洲幸运5开奖号码历史查询:passive investing. T🐽he aim is to maximize investors’ returns in the long-term.&nbs🗹p;

While index funds introduce diversification to your 401(k), keep in mind that these investments are not immune to market fluctuations.

Stable Value Funds

澳洲幸运5开奖号码历史查询:Stable value funds, similar to money market funds, are a conservative investment approach that still comes with higher yields. As the name suggests, this investment option can help to keep your 401(k) stable during periods of market volatility. These bond portfolios come with insurance, which means you will receive interest payments despite what is happening in the economy.

While stable value funds guarantee the principal investment as well as steady returns, those returns will likely be lower than those you could earn through higher-risk investments.

Tip

Target-date funds help you to manage risk in your 401(k), but they are not risk-free investments. Income from a target-date fund is not guaranteed.

Target-Date Funds

Target-date funds (TDFs), also called lifecycle funds, are an investment option designed to recalibrate risk as you move toward your chosen retirement date. Target-date funds take a more aggressive approach when you are younger and automatically shift to a more conservative approach as you near your anticipated retirement. Target-date funds are a type of mutual fund.

You can establish a target-date fund to take you up to retirement or through retirement. If you opt to go up to retirement, the fund will reach its most conservative investment approach at that point and maintain it. If you decide to have the fund go through retirement, the target-date fund will continue to adjust its level of risk, reaching its most conservative point after the retirement date you have chosen.

When Does It Make Sense to Mitigate Risk in a 401(k)?

It is natural for the value of a 401(k) to fluctuate during its lifecycle. As you draw closer to retirement, you can opt for 🌳less risk to maintain a more stable value. If you tend to take a more risk-averse approach to investment reg🔯ardless of your retirement timeline, you have the option to select safer investments earlier on in your career.

How Can You Choose Safer Investments for Your 401(k)?

Understanding your 澳洲幸运5开奖号码历史查询:retirement timeline and your risk tolerance will help guide you during the investment selection process. Many 401(k) plans have a default investment, which could be a managed account, balanced fund, or lifecycle fund. If you prefer safer investments, you can evaluate eac🥂h of the options available through your employer’s plan to find the mix that matches your comfort level.

Can Your View on Risk Change Over Time?

A typical 401(k) plan will have eight to 12 options, but some may have more or less than that. You can 澳洲幸运5开奖号码历史查询:rebalance your 401(k) assets to ensure they reflect the 澳洲幸运5开奖号码历史查询:asset allocation you want. You can also make changes to your 401(k) investments to reflect your evolving risk tolerance. Check with your employer's 澳洲幸运5开奖号码历史查询:human resources (HR) department to see how oꦿften you can make changes to your 401(k) investments.

The Bottom Line

Everyone has a different risk appetite when it comes to investing. Your 401(k) will be affected by 澳洲幸运5开奖号码历史查询:market cycles over the course of its lifetime, but some investment choices will ensure more stability than others. If you prefer to play it safe, there are a number of lower-risk investment options that you can explore for your 401(k).

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