DO YOU HAVE a choice? That's the key consideration when it comes to picking specific retirement investments. A 401(k) plan with a sound company match is hard to beat. But if your selection of investments is limited -- as it often is -- you're pretty much stuck with what you've got.
A good IRA, on the other hand, allows you to invest as you please. That doesn't make up for a lack of company match, but it does give you valuable flexibility to find the best investments you can. Versatility is the main reason it makes a lot of sense to roll your 401(k) into an IRA if you leave one job for another. Take away the company match and pretax contributions, and an IRA beats a 401(k) hands down.
No matter what type of plan you've got, however, we have resources to help you find the best investments available. Pick your category below and we'll steer you in the right direction.
IRA Choices
With the field wide open, there are several ways you can go with your IRA. It all depends on how much time you'd like to spend with your investments and how much experience you have.
- Indexing -- If you lack the time or experience it takes to really keep track of your investments, buying a set of index funds to match your asset allocation is the best way to go. As we mention in the Mutual Funds section of Investing 101, index funds usually have the lowest fees, they are tax efficient, and you don't have to worry about what the portfolio manager is doing. If your goal is long-term growth without having to pay much attention, these workhorse funds are the best solution.
- Guerrilla Funk Portfolios -- Our portfolio builder applet in Taking Action is another route to consider. Once you have your allocation, it will ask you how much time you plan to spend with your investments. Then it will suggest an appropriate strategy that matches your allocation needs. It also will suggest specific funds we have chosen in each of the asset categories -- large-cap funds, bond funds etc. For a complete list of recommended funds, click here.
- Do It Yourself -- If you'd rather learn how to use our tools and Mutual Fund Snapshots to evaluate and pick funds for yourself, check out Choosing Mutual Funds. A lot of financial advisers warn against buying individual stocks in your IRA, deriding the practice as too risky. But in our view, supplementing a more conservative approach with some stock picks can provide a nice kicker to your retirement portfolio. You just have to make sure you know what you're doing.
401(k) Choices
Since we don't know which mutual funds are available to you, steering you toward the right ones for your 401(k) is a little tricky. But we have several resources to help you analyze what you do have available.
- Basic Education -- First of all, the Mutual Fund section of Investing 101 can give you a fundamental understanding of what mutual funds are and how they behave.
- Use the Fund Analyzer -- After you've educated yourself in the basics of fund analysis, you can use our Fund Analyzer to compare the funds in your plan (click the link and it will launch in a separate window). If you have a list of the funds available to you, type in their symbols and the applet will search out the data for you to compare (if you don't have the symbols, use the fund-lookup link on the top of the Analyzer page). For more detailed information on individual funds, you can click on the fund name in the applet to link to our Mutual Fund Snapshots.
Unfortunately, a lot of people may not have enough choices to make a comparative analysis all that useful. Most plans have an S&P Index fund of some sort, which is always a good default. Failing that, use the Analyzer to see which of your options has the best long-term performance. Whether you have good choices or not, you should always put as much into your 401(k) as possible. We spell out the reasons why and give you a strategy to maximize your retirement plan in How to Make the Most of Your 401(k).
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