Does your 401K have enough investment options? Nope? Here’s what to do.

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The money you save year after year in your 401(k) plan shouldn’t just sit there in cash. You’ll need your nest egg to keep up with inflation so you don’t lose purchasing power as a senior. To this end, it is important to invest your retirement savings wisely.

Hope your 401(k) plan will offer a number of investment choices that will help you grow your money in a way that matches your risk tolerance, strategy and goals. But if not, you might want to find a better home for your nest egg. Consider these factors in your decision:

Do you have enough investment choices?

Most 401(k) plans offer a decent mix of actively managed, passively managed mutual funds index funds, and target date funds. But if you’re unhappy with the number of fund choices in your 401(k), it might be worth investing your long-term savings elsewhere.

Vanguard reports that the average 401(k) plan last year offered 27.5 investment options. This figure was effectively unchanged from the 2020 average of 27.4 funds.

55% of Americans save in a 401(k): But it might not be the best retirement account for you

But some 401(k)s offer far fewer fund choices. If this is the case for you, and you also don’t like the specific options available to you, you might want to consider investing your money somewhere other than a 401(k).

Remember that if your plan offers limited investment choices, it could mean:

  • Paying high fees for your investments that eat away at your returns
  • Being forced to invest too conservatively (and ending up with less money down the line)
  • Being forced to invest in a way that just isn’t what you want

And since it’s your retirement savings that are at stake, you deserve better.

Other investment options for retirement

If you’ve earned income, you can open an IRA — either a traditional account or a Roth account — and invest your money in it. The advantage of going this route is that, unlike 401(k), IRAs allow you to invest in individual stocks, so you’re not limited to what might be around a few dozen funds. And more choice could also mean lower investment fees.

Another option is to forgo the tax breaks associated with IRAs and 401(k)s and invest for retirement in a traditional brokerage account. The advantage is having a lot of flexibility with your money.

Retirement essentials: The 3 types of investment accounts to use for saving

With an IRA or 401(k), you will generally be penalized if you make withdrawals from your account before age 59½ (although there are some exceptions). With a traditional brokerage account, you can make penalty-free withdrawals whenever you want. One of these accounts may be a good option for you if you are thinking early retirement is in the cards.

Don’t underestimate yourself

It’s a good idea to put enough money in your 401(k) to claim your full employer match. Beyond that, you really shouldn’t feel pressured to save and invest in a 401(k) if you’re unhappy with your investment choices, especially when there are other options that could bring you closer to your goals.

5 things people get wrong about IRAs: Limits of protection against bankruptcy, estates and more

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