How to Choose Investments for Your 401k

Want to know how to invest inside your 401k or other company retirement plan? I’ll show you how to choose your investments and how to review what you currently own if you’re already invested to make sure you’re set up to reach your goals and to ensure you’re not making costly mistakes. What’s up my […]

Want to know how to invest inside your 401k or other company retirement plan? I’ll show you how to choose your investments and how to review what you currently own if you’re already invested to make sure you’re set up to reach your goals and to ensure you’re not making costly mistakes.

What’s up my name’s maggie Gomez and I drop videos every Friday teaching beginners how to invest and feel confident in their financial life. I’m a Certified Financial Planner and have worked as a Financial Advisor for Morgan Stanley and Etrade. I eventually left to create Money with Maggie where you can receive professional financial guidance regardless of your net worth. Take a look at my services in the link below and let’s get started.

When deciding how to invest, first, determine when you’ll retire and need the money. This can just be an estimate if you’re really far from retirement. Use age 60 as a minimum since you’ll most likely get penalized if you take money out sooner, but you can plan for later too. The further you are from retirement, the more aggressive you can be in theory. This is because you have both time and income on your side to recover from large market losses. If you’re closer to retirement then you want to be more conservative with your investments since you have less time to recover from losses.

Second, review your options. Each employer has its own list of what you can invest in. When I first did this as a teller at a bank this looked like another language. I had no clue what to do or what anything meant, so I’m going to help you through this process. The super-easy option is to choose a target-date fund that lines up with when you plan to retire. Take a look at this video for help with target-date funds and advice on costly mistakes people make when using them. The key with target-date funds is to just get one that lines up with when you think you’ll need the money. These are already diversified for you and change over time to become more conservative as you get closer to retirement. The later the year of the fund is, the more aggressive it will be starting out.

If they don’t offer a target-date fund or you want to create your own portfolio then you will need to choose from their other options. Your choices are likely broken into different categories. You may see large-cap, mid-cap, small-cap, international, emerging markets, corporate bonds, government bonds, and other categories as well. These each represents different types of investments like large, middle, or small-sized companies, international companies, loans to companies, real estate, and so on. There is no need to get multiple investments from each category because your likely just doubling up on the same underlying investments. Choosing one from each category can be a strategy to diversify, but it also may be too many if you have a lot of categories. You can use this as a guide to help you decide what percentage you should contribute to each category, I’ve linked it below in the description.

Under each category, you will be given a set of options. I look at each and choose the one with the highest performance and lowest fee, here’s how:

After determining which fund I want from each category I would set the allocation percentage to that fund for your contributions. Usually, the fund option will be listed on one side and the other side will ask for a percentage to be entered. To help understand this, first think of a pie. The whole pie is all of your investments together like we saw in that chart earlier. This question is asking out of 100% how much should go to this slice of the pie. A mistake would be to set the same percentage for each category. This can cause you to be too conservative or too aggressive depending on how far you are from retirement. Following a guide like the one referenced below will help you set good percentages for your life stage.

If you already have an account that is invested, you might have the question of making this selection for your current and or future contributions. I was confused by this when I saw this, but all it is asking is if you want to change how you are already invested to this new mix of investments or if you want to keep your current mix and make your future deposits go into this new mix. I would just change everything, meaning current and future elections. This prevents you from having way too many investments and keeps you in line with your risk profile you determined earlier.

Let me know in the comments if this is helpful or if you have other retirement account questions that I can answer in a future video!

Once you are invested, remember that you will see fluctuations in the value of your account over time. (insert screen recording of market performance over time) Some days you will make money, other days you will lose money, but historically speaking the market has more up days than down days so remember that this money is for retirement and if you keep investing consistently over time then you will have the benefit of buying in at all different price points and benefiting from compounding growth over the long run.

Now since you’re still here, I’d love it if you’d subscribe and give this video a thumbs up because it really supports my channel and also, I have an intro to investing course coming up, you can join the waitlist in the description below to be notified when it’s launching and you’ll have access early bird pricing.

Thanks so much for watching and I’ll see you on the next one, bye!

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