What are the best investments for a 401(k)?

What are the best investments for a 401(k)? It varies by investor, but generally, a blend of stocks and bonds that is heavier in equities is a good strategy early on, before gradually shifting to safer, debt-based investments and cash.

Should I pick a target-date fund or choose my own investments?

Should I pick a target-date fund or choose my own investments? That depends on your knowledge and ability to manage your own plan. Set-it-and-forget-it target-date plans are maintenance-free, but they offer less control and fewer customization options than self-directed investing.

How much of my 401(k) should be in stocks vs bonds?

How much of my 401(k) should be in stocks vs bonds? The exact ratio varies from one investor to the next, but generally, young people just starting out have up to 90% of their portfolio in stocks. In contrast, those approaching retirement might have 60% of their portfolio in stocks.

How often should I change my 401(k) investments?

How often should I change my 401(k) investments? It's beneficial to review your holdings at least once or twice a year, but the primary goal should be buy-and-hold investing for long-term gains. Changes should be rare, strategic and only done when necessary.

What's the safest way to invest a 401(k) close to retirement?

What's the safest way to invest a 401(k) close to retirement? Experts recommend shifting away from riskier investments with high growth potential, such as stocks, in favor of safer, more predictable investments with lower returns, like bonds, as retirement approaches.

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How to Invest in a 401(k) and Build a Strong Retirement Plan

July 30, 2025

6 min Read

Written by Andrew Lisa

Edited by Nupur Gambhir

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To invest in a 401(k), select a mix of stocks, bonds, and funds that align with your risk tolerance and retirement timeline, diversify your portfolio, and review and rebalance it regularly.

A 401(k) is more than just a savings account — it’s a powerful retirement tool that can grow significantly through smart investing. Choosing how to invest your 401(k) is one of the most important financial decisions you’ll make. Your investment choices affect how fast your money grows, how much you’ll have in retirement, and how well you’re protected against market ups and downs.

Whether you’re just getting started or revisiting your strategy, this guide will walk you through how to make informed decisions, avoid common pitfalls, and take full advantage of your 401(k)’s long-term growth potential.

Understanding How 401(k) Investments Work

401(k)s are funded with money pulled directly from your paycheck before it is taxed. That money is used to purchase investments automatically based on the plan you chose upon signing up and opting in.

Over time, your balance grows as market returns and compounding build on your contributions. As your balance grows, so do your returns, creating a financial snowball effect that transforms modest contributions into substantial sums over time.

Each plan is different, but most offer mutual funds, index funds, and target-date funds, the latter of which adjust automatically as your risk tolerance changes over time.

How to Choose Investments in Your 401(k)

Unlike a taxable brokerage account, where self-directed investors can create their own custom-tailored portfolios, 401(k)s require you to choose from predetermined plans populated with specific securities.

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It’s essential to understand the three main fund types:

Stock funds for growth
Bond funds for stability
Target-date funds for automatic allocation based on your retirement year and investing horizon.

Pay attention to expense ratios and other fees — low-cost funds grow more over time — and periodically review your plan and ask for updates about changes or new available options.

How to Build a Diversified 401(k) Portfolio

Consult with a financial advisor to develop the portfolio that’s right for you, but generally:

Create a mix of stocks and bonds tailored to your risk tolerance.
Younger investors with more time to recover from market downturns typically have a heavier stock allocation, often 80% to 90%.
Older investors benefit from a shift toward bonds and conservative funds as retirement nears to mitigate the impact of a potential crash.

Target-Date Funds vs DIY Investing

When it comes to investing your 401(k), you can choose a hands-off approach or take control of your investment strategy. Here’s how target-date funds compare to managing your portfolio on your own:

Target-date funds	DIY investing
Set-it-and-forget-it option. These funds automatically adjust your asset mix based on your expected retirement year.	You choose your own investments and manage the portfolio yourself.
Becomes more conservative over time, shifting toward bonds and other low-risk assets.	Offers more flexibility, but requires research, ongoing monitoring, and periodic rebalancing.
Ideal for people who want a simple, hands-off approach.	Best for investors who feel confident making their own decisions.

How Often Should You Rebalance Your 401(k)?

Market fluctuations, uneven returns and mismatched performance eventually steer all portfolios away from their original asset allocation. Calendar-based rebalancing allows investors to reset their holdings to their original percentages.

Review your 401(k) investment allocations at least once or twice a year to stay on track.
Rebalance your portfolio either on a set schedule or whenever your investments drift too far from your target mix.
Consider using your plan’s automatic rebalancing feature to keep your portfolio aligned without the extra effort.

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Tips to Maximize 401(k) Growth

401(k)s can be powerful wealth-building vehicles, but it’s up to you to get the most out of your plan.

Always contribute at least enough to get the full employer match, and never leave free money on the table.
Increase contributions annually. Many plans offer auto-escalation features that direct 1% more of your paycheck to your 401(k) each year.
Choose growth-oriented funds early and gradually shift to safer assets over time.
Avoid cashing out or borrowing unless absolutely necessary, as early withdrawals trigger penalties, taxes, and reduce your long-term savings potential.

Common 401(k) Mistakes That Hurt Your Retirement Savings

The following errors are as common as they are costly. Avoid them to get the most out of your 401(k).

Don’t ignore fees and expense ratios — they can quietly eat into your long-term returns.
Avoid keeping all your money in a stable value or money market fund, as these conservative options limit growth and compounding.
Make sure to adjust your portfolio allocation as you get closer to retirement to reduce risk.

How to Make the Most of Your 401(k) Investments

Investing your 401(k) wisely means balancing growth and risk in a way that fits your age, goals, and comfort level. The key is consistency: contribute regularly, diversify your portfolio, keep an eye on fees, and adjust your investments as your needs change.

Log into your 401(k) account today to check your investment mix and make sure your money is on track to grow with you.

FAQ

- What are the best investments for a 401(k)?
  - - It varies by investor, but generally, a blend of stocks and bonds that is heavier in equities is a good strategy early on, before gradually shifting to safer, debt-based investments and cash.

- Should I pick a target-date fund or choose my own investments?
  - - That depends on your knowledge and ability to manage your own plan. Set-it-and-forget-it target-date plans are maintenance-free, but they offer less control and fewer customization options than self-directed investing.

- How much of my 401(k) should be in stocks vs bonds?
  - - The exact ratio varies from one investor to the next, but generally, young people just starting out have up to 90% of their portfolio in stocks. In contrast, those approaching retirement might have 60% of their portfolio in stocks.

- How often should I change my 401(k) investments?
  - - It's beneficial to review your holdings at least once or twice a year, but the primary goal should be buy-and-hold investing for long-term gains. Changes should be rare, strategic and only done when necessary.

- What's the safest way to invest a 401(k) close to retirement?
  - - Experts recommend shifting away from riskier investments with high growth potential, such as stocks, in favor of safer, more predictable investments with lower returns, like bonds, as retirement approaches.

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