How do I pick investments for my 401(k)?

1 min read by Unbiased team Last updated June 28, 2024

Learn about the various options for investing in your 401(k) and get valuable tips for choosing the best investments for your retirement savings.


  • The 2022 Federal Reserve’s Survey of Consumer Finance discovered that a mere 54,4% of American families had dedicated retirement plans like IRAs or 401(k) accounts. 

  • When choosing their 401 (k) investments, you must consider their age, risk tolerance, and financial objectives. 

  • A financial advisor can advise you on picking the best 401(k) investments for your needs. 

What are 401(k) plans and investment options? 

Many employers offer a 401(k) savings plan, a retirement savings plan that allows employees to invest a portion of their paycheck before tax is deducted.  

When you enroll in a 401(k) plan, you must choose investments to grow your retirement funds.  

Several types of investment vehicles will be available, including stocks, bonds, mutual funds, target-date funds, index funds, stable value funds, money market funds, company stocks, and self-directed brokerage accounts.  

The best 401k investments will depend on your financial situation and preferences. 

How can you assess your financial situation and goals? 

Monitoring your typical income and expenses will help you assess how much you should invest in 401k.  

Remember to include your savings and other investments, as well as any debt. 

To set retirement goals, you must understand the time horizon until retirement and determine how much money you will need to sustain your lifestyle.  

Factors you should take into account when choosing investments for 401(k) plans include: 

  • Age: Younger investors have longer to save for retirement and can take on more risk. Those closer to retirement often prioritize capital preservation and income generation. 

  • Financial goals: Individuals aiming for significant growth may allocate more to stocks and stock mutual funds, accepting higher risk for a potentially higher income. Those seeking steady income may focus on income-generating investments. Investors looking to preserve capital may prefer low-risk investments like treasury securities, stable value funds, and high-quality bonds.  

  • Risk tolerance: Individuals comfortable with market fluctuations might invest in higher-risk assets like stocks or real estate, while risk-averse investors may prefer bonds or money market funds. 

How do you diversify your 401(k) portfolio? 

Diversification involves picking investments for a 401k that differ in order to lower the overall risk of your portfolio.  

You can choose investments across different asset classes by including stocks and a mix of government, corporate, and municipal bonds. You can also add cash equivalents like money market funds. Real estate investment trusts (REITs) may present a good hedge against inflation. 

To diversify your 401(k) portfolio geographically, you can invest in domestic and international securities. International investments can reduce reliance on the US market and provide exposure to emerging markets with higher growth potential. 

You can also diversify your portfolio across various sectors, e.g., technology, healthcare, finance, consumer goods, or energy. You could also invest in mutual funds and exchange-traded funds (ETFs).  

Target-date funds also provide an easy way to diversify and rebalance your portfolio periodically because they automatically adjust the asset mix over time, becoming more conservative as you approach retirement.

What are the different types of 401(k) investments? 

Knowing how to pick investments for 401k requires understanding what your options are.  

The most common include: 

  • Mutual funds 

Mutual funds are professionally managed. They pool capital from many investors to buy a mixed portfolio of stocks, bonds, or other securities. They are less risky than investing in single stocks. 

  • Stock funds 

Stock funds invest primarily in company shares. They have the potential for high returns; however, they come with higher risk and volatility. 

  • Bond funds 

Bond funds invest in municipalities, corporations, or government bonds. They offer lower returns but less risk. 

  • Target-date funds 

Target-date funds are set up to adjust their asset mix over time based on a specified target retirement date. 

  • Balance funds 

Balanced funds are mutual funds that combine bonds and stocks to provide growth and income.  

  • Index funds 

Index funds are passively managed and try to mimic the performance of a specific market index. They generally have lower expense ratios. 

  • Stable value funds 

Stable value funds are insured bond portfolios designed to shield investors from losing money. They are suitable for conservative investors looking to preserve their capital while earning a modest income.  

How do you choose between active and passive management? 

Actively managed funds have professional fund managers who select investments with the intent of outperforming a specific benchmark or index.  

Passive funds aim to replicate a particular benchmark's performance and are mostly automated with a degree of human oversight. 

What are the pros and cons of active management? 

Here are some of the advantages and disadvantages of active management you should consider: 


  • There is a potential for higher returns because skilled managers can outperform the market. 

  • Managers can quickly adjust holdings in response to market conditions. 


  • Higher management fees and transaction costs 

  • Active strategies can lead to more volatility and higher risk. 

What are the pros and cons of passive management? 

It’s important to take note of the pros and cons of passive management; here are a few to get started: 


  • Passive funds typically have lower expense ratios. 

  • They track their benchmark closely, providing consistent returns in line with the market. 


  • Passive funds seldom outperform the market. 

  • They cannot adapt to market changes or economic conditions. 

How do you manage and adjust your investments? 

Regularly checking and adjusting your 401(k) investments is essential to ensure they align with your evolving financial objectives and market conditions.  

Here are some tips for managing your portfolio: 

  • Review your portfolio annually or after a significant life event, like marriage or having a child. 

  • Check if your asset allocation matches your risk tolerance, time horizon, and financial goals. 

  • Look for consistent performance over time rather than short-term gains. 

  • Consider market conditions and personal circumstances when making adjustments. 

  • Avoid overreacting to short-term market fluctuations.  

Get expert financial advice  

Picking the best 401(k ) investments involves understanding the options available, diversifying your portfolio to minimize the overall risk, and constantly reviewing and adjusting your investments according to your circumstances.  

Get matched with an expert financial advisor at Unbiased who has the skill and market knowledge to help you choose 401(k) investments that work best for you. 


Unbiased team

Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.