Question

What investments should you have in your 401k? If you don't have a 401k (or 403b), what are your options? Everyone has their own unique situation but the goal is the same: satisfying choices in retirement. Share your challenges and solutions.

Answer 1

The investments held in 401k account should be diversified. 401k plans will offer a mix of different funds in various categories. It should be done so that the entire risk is spread across the investment categories. A typical 401k portfolio can contain large cap funds, mid cap funds, foreign stocks, bond funds, small cap stocks, etc.

Alternatives to a 401k account:

• Traditional/Roth Individual Retirement Account: These are applicable if the individual is below 50 years of age. The annual contributions are capped at $5000. The deposits to a traditional IRA are tax deductible while a Roth IRA makes the withdrawals as tax deductible
• Simplified Employee Pension IRA: This is applicable to individuals who own a business or are freelancers. It acts like a traditional IRA.
• Variable Annuity: A variable annuity is purchased through a contract with an insurance company. The insurance company agrees to make annuity payments at a later period, presumably after retirement with the payment for the contract made by a lump sum payment or a series of payments.
• Index Funds: Investments can be made in an index fund that track the indexes such as S&P 500.