Six 401(k) Investment Options

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Investors can now allocate their retirement savings, thanks to the 401(k) plan. Here are six commonly used investment options, as enumerated by a recent analysis of around 25 million participants by the Employee Benefit Research Institute.

1. Equity Funds: As the most popular form pf investment, the analysis report says that almost 43% of the sample has invested its account balances in Equity Bonds. Equity Binds are more popular among the younger population compared to the older. According to Emilie Goldman, who is a certified planner at Tamarind Financial Planning, San Meteo, this trend among youngsters is expected as they are bound to be more financially aggressive and are not going to utilize that amount anyway.

2. Balanced funds: These funds are now gaining a lot of popularity as a way to mix your investment options such as equities, bonds and cash. EBRI found that Target-date funds are among the most popular kind of balanced funds. The also stated that these funds constitute 18% of the 401(k) assets. Raquel Hinman, a certified financial planner for Hinman Financial Planning in Colorado believes that Target-date funds are a good all-in-one solution for investors as there is very to think about before investing. As such this is the default investment plan for investors who are enrolled in a 401(k) plan. She says it is a very good option because it eliminates the headache for a person to pick his funds on his own. All he has to do is remember that the fund allocations can change over time.

3. Bond-funds: These funds are more popular among the older of the sample group. Bond-funds make up 8% of the 401(k) investments. As fluctuations are lesser in Bond-funds, it is only natural that the older generation would want it due to its predictable and relatively safer nature.

4. Company Stock: 7% of the sample has invested in company stocks. This is a very risky option because if the company does not do well, you will be losing a lot of money. Experts suggest that you allocate only a small portion of your income on company stock. That way, you will be reducing your exposure to the riskiness of this option.

5. Stable value funds: ERBI found that Stable value funds are common onlya among 2% of the younger investors and 8% older ones. So, this is a type of investments that a person would consider as he ages.

6. Money funds: Clearly the most unpopular option, only 4% of the sample chose to keep their money in Money funds- and these mostly being the older people. Money funds are high risk and are thus very unpopular among investors.