401 (k) is a retirement program initiated by the government but sponsored by one’s employer. It can be referred to as a voluntary contribution from an employee’s paycheck before the taxes are deducted. 401 (k) allows an employee to save for retirement and invest the money contributed by one’s employer.

Investment options for your 401 (k)
There are various investment plans and options available for 401 (k) such as mutual funds, stock markets, and bonds.

Choosing a right target-date fund
A target-date fund (TDF) is an age-based low-maintenance retirement mutual fund. It is more of a conservative fund. Though a TDF provides convenience and is quite popular with investors, it entails a hefty cost operating fees to cover the expenses. Depending on your retirement age, start your TDF early. If TDF is not an option, then one can go with equity index funds.

Opting for equity index funds
You can opt for low-cost funds such as S&P 500 Index and S&P Vanguard Index. These funds offer diversified portfolio spreading the risk factors. Index funds are a better option as the fees are very nominal and they have a good track record with respect to return on investment. all 401(k) funds work on fees. You need to compare the operating fees before investing in index funds.

Choosing short-term investment grade bonds
If you are looking for safe investments devoid of any risk, short-term investment grade bonds can fit the 401(k) plans. BMO, Principal, and Deutsche are some of the short-term funds, which have a less expense ratio and deliver good returns. The advantage of short-term bonds is, they are low risk, and are considered a stable form of investment.

Following the 90:10 allocation
Once you have secured your investment with short-term funds, re-allocate these funds by switching a part of your investment amount with 90% equity index and remaining 10% with bond index funds. You can do this through the online portal under exchange funds or transfer money between funds option. Even your plan administrator can help you with the same.

Changing your paycheck settings
To maintain the same arrangement, you will have to adjust your paycheck settings so that you maintain the 90:10 allocation. Look for the automatic rebalance feature available in your 401(k) fund, so that the allocation is made as per your setting. In case, the feature is unavailable, you have to allocate manually once a year.

Shuffling your allocation at every milestone
At every important event in your life such as marriage, buying your dream home, or the birth of your kid, keep on adjusting the allocation. As you inch towards retirement, change your priorities from growth fund to income fund.

401 (k) funds are the savings that will work for you when you invest it the right way. It would help you could save so many dollars as your retirement funds add up over the years.