Navigating Workplace Retirement Investment Options

Vincenza Vicari-Bentley, AFC

​Congratulations! You’ve decided to put money for your retirement through an account offered by your employer. You’ve taken the first big step but now you may face a much tougher decision: 
how to invest your retirement savings? 
You might be overwhelmed with information from your employer and it might be several pages of instructions and advice about things like asset allocation, fund performance, and fees. You probably want a simple answer.  However, when figuring out which investments are best for you, there are a few recommended steps: 

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1. Learn about the different types of investments you have to choose from. The average employer offers 21 different funds to choose from.  
2. Figure out the right mix of investment types that will give you the balance of risk to reward that you want. Your company’s 401(k) plan will typically offer a small selection of stock and bond funds, ranging from conservative to more aggressive. 
3. Choose the specific funds within each category that will offer you the best return.  

 
One way to research the funds your employer offers you is to use a free web-based tool from FINRA. FINRA is an organization authorized by Congress to protect America’s investors by making sure the industry operates fairly and honestly. Their fund analyzer helps you sort through and compare more than 30,000 funds. Look at five and 10-year returns for a better idea of how the fund has performed over time (some newer funds won’t have a lot of historical information). Just remember that past performance is not a guarantee of future performance.

Another thing to look at on each fund’s information sheet is its expense ratio. It’s the percentage of the money you invest that you’ll spend on 401(k) fees. For example, if the expense ratio for a particular fund is 1%, that means $10 out of every $1,000 you invest will go toward fees, cutting into the return you earn on your investments. Even a small difference in the expense ratio can add up to a big difference in your long-term earnings!  Dinkytown.net has a free calculator to see how different fees can impact your investment strategy. If all of this still sounds overwhelming, you can opt for a target-date fund, which takes most of the guesswork out of the equation. With these funds, you select a “target” retirement year and risk tolerance, and the fund is automatically set to an appropriate asset allocation for you. Target funds offered through your employer’s 401(k) can be great options for beginner investors.  

​Lastly, take the time to look over your quarterly 401(k) statements and see how your investments are doing, and if you’re not happy, don’t hesitate to switch things up. What matters most is that you invest your own money in a way that fits your financial goals and priorities.