Choosing investments for new 401(k)

Ask NJMoneyHelp

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Q. I’m starting a new job and it has a 401(k). My old 401(k) was 50 percent in an S&P 500 fund and 50 percent in a value fund. How do I choose my new funds? They have like 30 choices all over the place, it seems.
— Overwhelmed

A. You’re correct that you’re looking at a lot of choices.

This may be the time you decide how much time and effort you want to spend managing your 401(k).

Because there are probably easy options.

Chances are, with 30 choices, you have access to target date funds, said Brian Power, a certified financial planner with Gateway Advisory, LLC in Westfield.

He said a target date fund is invested in a very diversified manner, taking into consideration your targeted date of retirement.

“The further you are from that date, the more stock market exposure the investment mix will have,” Power said. “As the years pass and you get closer to your retirement date, the fund automatically migrates to a more conservative mix and by the time the actual target date is reached, there could be as little as 35 percent in stocks.”

Power said these types of funds remove a lot of the burden of making investment decisions and figuring how to mix different investments together the right way.

If you have the time and interest to research all the funds, Power said, your employer or the 401(k) administrator should provide you with enough information about each fund for you to use certain criteria that you may find important to make your choices.

And hopefully, he said, there are tools on the 401(k) website to help you analyze your risk tolerance and provide a proper asset allocation based on that risk tolerance.

“Once you can determine which asset allocation would make most sense for you, you can fill the sleeves of the asset allocation — sleeves meaning stocks, bonds, domestic, international, etc. — based on your analysis of each non target date fund available to you.”

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.