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Money Q&A: Investments to Pick for your 401k

Q.

What type of investments should I choose for my 401(k)? Until now, I let my company pick the investments for me, but I want to see a higher return.

A.

You can take matters into your own hands, but remember that higher returns come with more risk. Chances are you’re nowhere near retirement age and won’t be seriously affected by some stock market turbulence. You probably have at least a portion of your 401(k) invested in bond funds. Sell those and opt for equity-based funds. A large cap (short for “capital”) fund includes big companies that have been around a while, like Coca Cola and Gap. They’re big and often (don’t mistake that with “always”) solid companies. But they generally don’t double or triple your returns. Small cap funds offer more growth but are riskier.

Whichever you choose, remember to research the fund’s performance. Morningstar.com is a popular service. After looking up your prospective fund, compare how it has done with its benchmark (an index with similar securities in the fund). It should be doing better than its benchmark over three, five, and ten years. It’s impossible to say how well it should be doing because there are so many factors at play, including risk. Call a financial advisor to help you make the best decision.

-- The Nest Editors

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