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I am choosing my 401(k) investment options from my company. I am seeing alot of recommendations in stack exchange that at a young age, one should allocate money towards stocks. However in the 401(k) option my company provides, it only provides one stock option, which is the company I work for (large bank).

My question is, how much should I allocate towards this one stock?

I am also given the option towards many different domestic and international equities, how should I divide my allocation?

  • Target Date 2055 Fund

  • Short-Term Fixed Income Fund

  • Stable Value Fund

  • Government Inflation-Protected Bond Fund

  • Core Bond Fund

  • Intermediate Bond Fund

  • High Yield Bond Fund

  • Large Cap Value Index Fund

  • Large Cap Value Fund

  • S&P 500 Index Fund

  • Large Cap Growth Index Fund

  • Large Cap Growth Fund

  • S&P MidCap 400 Index Fund

  • Small Cap Index Fund

  • Small Cap Core Fund

  • Small Cap Blend Fund

  • International Large Cap Value Fund

  • International Large Cap Index Fund

  • International Small Cap Index Fund

  • Emerging Market Equity Index Fund

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    What are the other investment options. Generally "one should allocate money toward stocks" means toward funds made up of stocks rather than funds made up of bonds. Your 401k probably has some stock fund options. – quid Sep 15 '17 at 19:32
  • @quid I added the different investments available – user Sep 15 '17 at 19:36
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    Everything from 'Large Cap Value Index Fund' downwards are stocks; with increasing risk/gain. – Aganju Sep 16 '17 at 2:03
  • It would really help if you posted (a) the fee (annual expense) for each fund and (b) whether the company offers a match. No match, and a high enough fee, and the advice would be veery different. – JoeTaxpayer Sep 16 '17 at 2:03
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I can't find a decent duplicate, so here are some general guidelines:

First of all by "stocks" the answers generally mean "equities" which could be either single stocks or mutual funds that consist of stocks. Unless you have lots of experience that can help you discern good stocks from bad, investing in mutual funds reduces the risk considerably.

  • Put no more than 10% in any single stock. Individual stocks are much more volatile than mutual funds, but also have the opportunity for larger returns. Normally I would not recommend single stocks at all, but there can be some "sense of ownership" in your current job if you own company stock. If your company match is all in company stock, then do not allocate any of your contributions, as you will already have plenty of company stock in your portfolio.
  • Think about what your risk tolerance is - meaning what level of volatility are you comfortable with. Since this is a retirement account you are not relying on any income generated, so the only reason to have a low risk tolerance at your age is if large swings in the market will cause you to change your strategy.
  • Look at funds with the highest historical returns net of expenses. For example, a fund that averages 10% over 5 years but has a .05% expense ratio would be preferred over a fund that has an 11% return over 5 years but a 2% expense ratio.
  • Choose 4-5 funds that have good net historical returns in different categories (large-cap, small-cap, international, fixed-income) that meet your risk tolerance requirements (e.g. if you have high risk tolerance you can choose funds with higher variances; otherwise choose funds with lower variances.

If you want to fine-tune the plan, you can weigh certain categories higher to change your risk/return profile (e.g. equity funds will have higher returns and risk than fixed income (bond) funds, so if you want to take a little more risk you can put more in equity funds and less in fixed income funds).

Lastly, don't stress too much over the individual investments. The most important thing is that you get as much company match as you can. You cannot beat the 100% return that comes from a company match. The allocation is mostly insignificant compared to that. Plus you can probably change your allocation later easily and cheaply if you don't like it.

Disclaimer: these are _general_ guidelines for 401(k) investing in general and not personal advice.

  • Most of those funds look like stock funds to me. Personally, I'd pick - Large Cap Growth Index - S&P MidCap 400 Index - Small Cap Blend - Emerging Market Equity Index That's pretty close to what I have and I'm over 50. At your age, the MOST important thing is to put money in. If you're not happy with one investment in 6 months, you can change it. – Michael Sep 15 '17 at 23:18
  • There are 13 equity funds, 5 bond funds, and one "target date" fund, so a majority are equity funds, yes. Good point about changing later, though. – D Stanley Sep 18 '17 at 13:59
  • @dstanley, great point about the company match - everyone with a 401k should invest at least the minimum to get the match. It's free money, which immediately adds to your return! – JW8 Oct 12 '17 at 22:15
  • @JW8 Well, maybe not everyone, but everyone who can afford to. Some things (like food) are more important than even a 100% match. – D Stanley Oct 12 '17 at 22:26
  • @DStanley, true enough - I'm presupposing that jobs that offer a 401(k) match typically pay enough to allow the employee to eat and get housing. Could be a a bad assumption though. :) – JW8 Oct 13 '17 at 5:44
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If you don't want to pay much attention to your investments, target date funds -- assuming you find one (like Vanguard's) with no management fees beyond those acquired from the underlying funds -- are usually a great choice: when the target date is far off, they invest almost entirely (usually 90% or so) in (mutual funds that in turn consist of many) stocks, with the remainder in bonds; as the date gets closer, the mix is automatically shifted to more bonds and less stocks (i.e. less risk, but less potential return too).

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    Target date funds are a terrible choice. All of your gains are eaten by management fees. – Nathan L Sep 15 '17 at 21:15
  • I agree. target date funds are horrible for the investor; great for the investment company. – rocketman Sep 16 '17 at 15:14
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    Target date funds can be fine depending on the fee. There are plenty of people who don't want to care, don't want to learn and don't want to know what is going in the market; target date funds accomplish that, you invest in a single place it balances as you age and there are plenty of reasonable fee target date funds. Casting a net over all target date funds as terrible and horrible because some are too expensive is a bit much. (my employer's 401(k) target date funds range from ~1.2% to 1.4% which IS horrible; in contrast to the Vanguard 2055 fund at 0.16%) – quid Sep 16 '17 at 17:43
  • @JonathanTomer you may want to expand a little on this answer to address fees. – quid Sep 16 '17 at 17:49
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    Edited to note that not all funds of a particular type are good. Vanguard's target date funds have zero expenses above the acquired expenses of the underlying funds. – Jonathan Tomer Sep 29 '17 at 20:59
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Split your contributions evenly across the funds on that list with the word "core" or "S&P" in the name. Maybe add "International Large Cap Index". Leave it & rebalance occasionally. Read a book on Modern Portfolio Theory sometime in the next 5 years.

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The question you should be asking yourself is this: "Why am I putting money into a 401(k)?" For many people, the answer is to grow a (large) nest egg and save for future retirement expenses. Investors are balancing risk and potential reward, so the asset categories you're putting your 401(k) contribution towards will be a reflection on how much risk you're willing to take. Per a US News & World Report article:

Ultimately, investors would do well to remember one of the key tenants of investing: diversify. The narrower you are with your investments, the greater your risk, says Vanguard's Bruno: "[Diversification] doesn't ensure against a loss, but it does help lessen a significant loss."

Generally, investing in your employer's stock in your 401(k) is considered very risk. In fact, one Forbes columnist recommends not putting any money into company stock. FINRA notes:

Simply stated, if you put too many eggs in one basket, you can expose yourself to significant risk.

In financial terms, you are under-diversified: you have too much of your holdings tied to a single investment—your company's stock. Investing heavily in company stock may seem like a good thing when your company and its stock are doing well. But many companies experience fluctuations in both operational performance and stock price. Not only do you expose yourself to the risk that the stock market as a whole could flounder, but you take on a lot of company risk, the risk that an individual firm—your company—will falter or fail.

In simpler terms, if you invest a large portion of your 401(k) funds into company stock, if your company runs into trouble, you could lose both your job AND your retirement investments.

For the other investment assets/vehicles, you should review a few things:

  • Expenses - generally, the lower the expense, the more the investor keeps
  • Asset type - indicates where the fund is planning on investing (e.g., large cap stocks, bonds, international, etc.)
  • Fund management type - active or index. Active funds typically have higher expenses because the fund managers actively trade in an attempt to increase returns, while index funds are passively managed and mirror a specific index (e.g., S&P 500).

Personally, I prefer to keep my portfolio simple and just pick just a few options based on my own risk tolerance. From your fund examples, without knowing specifics about your financial situation and risk tolerance, I would have created a portfolio that looks like this when I was in my 20's:

  • S&P 500 Index Fund (65%) - this index tracks the market relatively well and consists of large companies
  • S&P MidCap 400 Index Fund (15%) - mid cap companies have the potential to grow faster than large caps, but are riskier
  • International Large Cap Index Fund (20%) - add some international exposure to increase the diversification of my portfolio

I avoided the bond and income/money market funds because the growth potential is too low for my investing horizon. Like some of the other answers have noted, the Target Date funds invest in other funds and add some additional fee overhead, which I'm trying to avoid by investing primarily in index funds. Again, your risk tolerance and personal preference might result in a completely different portfolio mix.

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