Individuals have a range of options when choosing suitable investments choices for a 401k plan. Employees can generally choose from mutual funds that are weighted toward stocks if they prefer market exposure, while self-directed 401k plans typically have more flexibility, including the ability to directly trade individual stocks. Given the tax-deferred advantages and long-term perspective of 401k plans, choosing stocks and mutual funds with healthy dividend yields and growth prospects remain key considerations.
Company-Directed Plan
Video of the Day
Fidelity offers custodial 401k plans with a broad array of investment choices based on its mutual funds. Companies will generally provide a subset from which employees can choose that offers stock exposure, diversification, dividend yields and growth potential. These company-directed plans are typically conservative, as they do not want employees to fret about the status of their investments when they should be focused on serving clients or manufacturing products.
Video of the Day
Risk Tolerance
Fidelity provides accessible and detailed information to help 401k plan participants make the choices right for them, geared toward determining acceptable levels of risk, market experience and time frame. Employees in their 20s and 30s, whether or not they change jobs throughout their careers, will generally be able to shoulder more risk. This may involve lower or no dividend yields, weighed against solid balance sheets and growth prospects. Those in their 40s and 50s have less time to accumulate enough money for retirement or to make mistakes, so a more conservative perspective remains appropriate.
Self-Directed Plan
Most company-sponsored plans do not allow trading in individual stocks, which can be risky and, given the necessary research, time-consuming. However, sole proprietors and business partners can open a Fidelity self-directed 401k plan and manage it themselves. They then have access to trading individual stocks, mutual funds, commodities, options and other investment choices. Plans maintained with previous employers can be transferred to Fidelity within 30 days.
Diversification
Retirement may seem a long way off, but the calendar's relentless passage makes prudent planning and diversification essential. If a 401k account holder invested 100 percent of his assets in Internet stocks, for example, that course of action could yield riches or poverty. Individuals should consider a mix of financially stable companies in differing industries, high-yielding stocks and those with stellar growth prospects. The key is not only to make money in a Fidelity 401k account, but to avoid losing it as well.