Do your 401(k) investments support your goals?

Key Points

  • Understanding the investment offerings in your company-sponsored retirement savings plan can help you make informed decisions.
  • It’s critical to select investments based on your long-term financial goals and risk tolerance.
  • Work with your advisor, who can help you select a diversified mix of funds.

If you’re like most Americans, the assets in your employer-sponsored retirement plan make up a large part of your savings. A common question among this group is: How can you tell if a particular fund option aligns with your goals?

Depending on where you are in your financial journey, your advisor can help you strategically choose among the options appropriate for your goals. Traditionally, the funds offered as investment options in most employer-sponsored 401(k) plans indicate the fund’s investment objective. This is a great starting point to determine whether a specific fund option may be right for you. For example:

If you have 10 or more years to fund your goal, your investment objective should include growth of principal

Growth funds seek capital appreciation (growth of investment principal) typically by investing in stocks (equities) among a range of company sizes. In the fund descriptions, you may see terms such as large cap, mid cap and small cap stocks. These funds may be appropriate for goals such as funding your retirement years from now. Generally, when you seek to grow your investment value you should have a:

  • Longer time horizon to allow the investment value to appreciate.
  • Higher tolerance for risk to weather price and account-value fluctuations.

If you have three to five years to fund your goal, your investment objective should include capital preservation with income  

For goals you want to achieve in the not-so-distant future, you may want to consider investments that seek to keep your savings stable (capital preservation) while providing the opportunity to generate income. Look for funds labeled:

  • Stable value
  • Capital income
  • Capital preservation

Your advisor can help you discern among the capital preservation/income funds your employer plan offers, and guide your selections based on your time horizon and risk tolerance.

If you need to fund your goal immediately, your investment objective should include income

As you finish your career or enter retirement, it’s likely your goal is to maximize income. It may make sense to migrate to investments that grow enough in value to deliver an income stream while keeping up with inflation, without excessive risk. Your advisor can help you:

  • Determine the amount of income you’ll need to draw from your investments.
  • Decide how much of your savings to move into reasonably stable investments so you have income to cover essentials.

As you review your employer’s plan offerings, look for fund options that invest in dividend-generating, large-cap stocks — they can provide a degree of principal preservation along with income generation. Another option is a diversified bond fund that emphasizes income. Many of those funds invest in a mix of income-generating government and corporate debt securities, with various degrees of credit quality and risk.

We can help

Your advisor can help you evaluate the investment options in your 401(k) account or other employer-sponsored retirement plan and help you choose a diversified mix that’s right for you. Schedule a consultation today to stay on track to achieve your goals.