| Investing money in your 401k need not be a | | | | will do better than others; and some will be losers |
| stressful thing. Here's a real simple investment | | | | from time to time. |
| strategy to lighten your load and help you make | | | | For example, in 2008 virtually all stock funds lost |
| money with less risk. | | | | money because the stock market tanked. |
| First, decide whether you want to be | | | | Investors in 401k plans without a sound |
| conservative, middle-of-the-road, or aggressive | | | | investment strategy did not make money ... they |
| when investing money in your 401k plan. THINK | | | | lost big bucks. On average they had about 60% |
| before you make your decision, because | | | | of their money in stock funds and just let it ride. |
| aggressive investing means more risk; and | | | | Here's your investment strategy. You rebalance |
| conservative means less potential profits. You | | | | your assets periodically. If your stock funds take |
| must be comfortable with this decision before | | | | significant losses, move money from your other |
| you put together an investment strategy. | | | | investment options to bring your stock funds |
| Now, let's get to the easy part and assume you | | | | back to 40% of the total. Ditto, your other |
| want to go middle-of-the-road or moderate. You | | | | investment options. The important thing is that |
| need an investment strategy. This means that | | | | you don't let your percentages get out of line. |
| you pick the investment options you want to | | | | In our example you decided to invest money like |
| invest money in, and what percent goes to each. | | | | this: 40% ... 20% ... 20% ... 20% in the various |
| After you've done this you need an investment | | | | investment options. Rebalance when necessary to |
| strategy for managing your portfolio over time. | | | | keep these percentages within a few percentage |
| So, you decide to invest money as follows: 40% | | | | points of your original targets. By doing this you |
| to domestic (U.S.) stock funds, 20% to | | | | automatically take advantage of swings in value |
| international stock funds, 20% to | | | | of the various investment options. |
| intermediate-term bond funds and 20% to the | | | | For example, stocks got nailed in 2008 but |
| safe stable account (or money market fund if | | | | rebounded 50% from March to September in |
| your plan does not have one). This is called your | | | | 2009. Had you rebalanced when stocks were |
| asset allocation for contributions. This is how the | | | | down, you'd have made up for much of your |
| money they take out of your paycheck is | | | | previous losses. |
| invested. | | | | Here's the really good news for some of you. |
| If you already have funds in your account, have | | | | Many 401k plans offer automatic rebalance |
| them switch you to the above percentages. | | | | service. You just tell them how often you want |
| Now, here's the important part if you want to | | | | to rebalance (like once a year) and they do the |
| make money over the long term without much | | | | rest for you, automatically. If this is available, take |
| effort or stress. Over time, some of the | | | | advantage of it. Few 401k investors do, probably |
| investment options you picked to invest money in | | | | because they know nothing about it. Now, you do. |