Don’t Just Settle for the Target Date Fund

Think hard before you simply invest your 401(k) in a target date fund. The concept of these funds is that they're geared to evolve as you move closer to retirement. If you’re planning to retire in 2035, for example, you would invest in a target date fund that matures in that year. The fund’s managers will continually re-balance the fund to maintain an appropriate allocation as the target date gets closer.

Here's Why This May Not Be the Best Route:

For starters, funds use different allocation strategies, which may or may not be a good match with your goals. A target date fund’s performance is largely based on the fund managers. Since you probably don’t know the good managers from the bad, picking a fund is difficult.

Equally important, fees for these funds are often high, and novice investors don’t understand the golden rule of target date funds: Most financial advisers agree that it’s close to an all-or-nothing investment. Investing your 401(k) in other funds as well throws off the allocation.

One-stop shopping is appealing, but just because these vehicles are a simple way to invest on the surface doesn’t mean that they are easy to understand.

Your 401(k) should be one of Multiple Retirement Vehicles:

Your home, a side business, collectibles and other investment accounts such as an IRA might be part of your mix as well. When you switch jobs, consider whether it makes more sense to roll over your previous company's 401(k) into your new employer's plan or into an IRA; the latter may give you more investment choices. Spread your assets over multiple income streams and you’ll likely see better results.