Choosing Funds in Your 401(k)
The plain answer
Section titled “The plain answer”For many people, a low-cost target-date retirement fund is a practical default. It holds a diversified mix of investments and adjusts that mix as its target year approaches.
If your plan does not offer a suitable target-date fund, look for low-cost, broadly diversified index funds. Your plan’s menu, fees, time horizon, and comfort with risk all matter.
How it actually works
Section titled “How it actually works”A 401(k) gives you a limited menu of investments selected by the plan. The options may include target-date funds, stock funds, bond funds, stable value funds, and company stock.
A target-date fund combines several investments in one fund. You generally choose the year closest to when you expect to retire. Funds with the same target year can have different fees, investment mixes, and levels of risk, so read the fund information before choosing.
Index funds aim to track a market benchmark instead of trying to select winning investments. If broad index funds are available, they can be useful building blocks because they often provide wide diversification at a low cost. Learn more in The Case for Index Funds.
Fees reduce the amount that remains invested and compounds over time. Compare each fund’s expense ratio and any plan-level fees. Why Fees Matter explains the long-term effect.
What this means for you
Section titled “What this means for you”Start by checking whether the plan offers a diversified, low-cost target-date fund. If you use one, avoid adding overlapping funds unless you have a clear reason, because the target-date fund is already designed as a complete portfolio.
If you build your own mix, favor broad diversification, keep costs in view, and choose an allocation you can maintain through market changes. Review your selection periodically and when your goals or circumstances change.
Common mistakes
Section titled “Common mistakes”- Choosing based only on recent performance
- Ignoring expense ratios and plan fees
- Holding several funds that own many of the same investments
- Taking more or less risk than your time horizon supports
- Leaving contributions in cash because no investment was selected
- Concentrating heavily in your employer’s stock
Related pages
Section titled “Related pages”Educational content, not personalized financial, tax, or legal advice. No affiliate relationships. Figures are for tax year 2026 and change annually.Read the full disclaimer.