401k is so confusing!! Help!

The conventional wisdom is the younger you are, the higher your risk tolerance in retirement funds because you have many years before needing that money.

I'm 42 and still have most of my 401(k) in fairly aggressive investments because I have over 20 years until retirement and I want to maximize growth on these funds. But that's my personal risk tolerance.

You want to be careful about getting too conservative too young because you will lose out on the time value of money - the lower your risk, the lower your returns.

It's a balancing act. It sounds like you don't have a financial advisor and I'd highly recommend you get one (fee-based) to help you make decisions like this with your full financial situation in mind.

Look to see if your 401K offers age options. Basically investment funds geared for length of time to retirement. So if it's 40 years away (someone in their 20s) it is a riskier mix. For someone under 5 years (55-60 ish) it is more conservative.

An easy way to try to balance your risk.

Ask your HR person if they have a financial person that they advise with. They can probably steer you into the right direction. I'm 45, and I'm about 40% aggressive growth, 40% growth and 20% growth and income. If you've got 10 years+ retirement, you don't want to go too conservative. If the market were to go down, you'd have plenty of time to recover (and get a good bargain on funds in the process).

My advice for 401k investing is always keep the fees low and keep it simple.

Here's what I do. I wait for a crash and then I get into stocks. Until then, I hang out in mostly fixed income, even if the market is on an upswing. The stock market loses 50% of its value on average every 10 years. It has a 10-20% correction every 3 years. It has at least a 5% correction each year. There are always opportunities for me to get back in. .

I started investing heavily in March 2009 when the S&P hit 666. It's now at 2100. I recently got out at 2108 at have 100% in fixed income. I do that from time to time whenever Europe flares up again, or this time the China slowdown and currency manipulation scares me, along with an upcoming rate hike by the Fed (which isn't necessarily bad but they are also done with quantative easing, which inflated stocks).

But I'm the type of person to listen to CNBC 2-4 hours a day and read all the financial headlines. Part of that is for my job. Most people ain't got time for that.

When you want to invest in stocks, choose a fund that mirrors the S&P 500 and that has very low fees (like close to zero). That will get you all the diversity you need. Other funds will outperform the S&P in certain years but underperform in others. For example the mid and small cap stocks were on a tear last year but are getting beat down in the last few months. Just stick with the S&P. Your 401k advisor should be able to help you identify that fund.

Do you have target date funds? For example, a fund that selects a weighting of stocks vs. bonds based on your retirement date? That would be worth looking into if you just want to "set it and forget it. " but again, make sure the fees are low.

@yubon peatlejuice Does that info hold true for a 403 (b) also?? Mine is through American Funds

i don't see why not

Do they offer a target retirement fund? If so, you choose the approximate year of your retirement and that fund will get more conservative over time.

Yes, they do.  I've seen them with a few clients that have American Funds.