On your retirement plan document, under Investment performance or investment choices it will list all your funds names and the type. The type will tell options like: money market, bonds, target retirement date, large cap, mid cap, small cap and international which is emerging markets.
There will be categories like:
Value: They invest in companies which it determines to be underpriced by fundamental measures. Often mature companies that have stopped growing but have consistent earnings.
Growth: A mutual fund that will focus on companies that are experiencing significant earnings or revenue growth. These funds are based on potential.
Blend: This is when that mutual fund has a combination of both types of companies.
- Your retirement plan options could have examples like this:
- Small Cap Value, Small Cap Growth or Small Cap Blend
- Mid Cap Value, Mid Cap Growth or Mid Cap Blend
- Large Cap Value, Large Cap Growth or Large Cap Blend
- International Equity or Emerging Markets – They invest in small, medium and large companies in different countries.
To determine which small, mid, large and international fund to have, compare the 1, 3, 5 and 10 year performance to see which fund has done better. By clicking on that fund, it will tell you the expenses. Never pick a fund that charges a front end load. This is when it cost you every time you contribute to that fund. Consider the expenses in your evaluation.
Once you have the final four funds to invest in is when you can make each 25% to get the 100% invested balance. When 401k investing, there is no right or wrong. It comes down to what you understand and believe to be the best thing for you. If you are an aggresive investor then you could pick one or two funds that are doing the best in the 1 year performance regardless of type and always maintain that strategy every 6 to 12 months.
Learn how to open a gold retirement account.
Mutual funds like money market and bonds are used when the market is declining. Their performance is always low and stable. Money market funds decline less than bond funds when the stock market collapses. Other funds like the retirement target date funds that say 2030, 2040 and 2050 are meant for when you planning on retiring near or at that year.
The negative on retirement date funds is when the market rises, they will perform less then the four basic types. They are fixed to have a certain amount of growth and stable stocks. As you get closer to that retirement year, those funds will have less growth stocks and more stable stocks that don’t earn a higher percentage. They are set that way for safety reasons but you miss out on earning more when the market rises as you see from the chart on the Home page.
The above information will give you a good guide line to your 401k. Once you read everything again from the first page and then get on your 401k website, it should all come together for you.
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By Michael Brown
Retirement planning expert and rollover IRA to gold adviser.