What Should I Invest My Retirement Account In?

Sep 20 · 3 min read

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Key Takeaway: Deciding on how to invest the money inside of your 401(k) or IRA? Try investing in a Target Date Fund, having a Robo-Advisor do it for you, or using the Asset Allocation Strategy. Target Date Funds and Robo-Advisors will cost you a little more but you won’t have to pick investments yourself. The Asset Allocation Strategy will cost you the least in fees but you’ll have to choose your own investments.

What Should I Invest My Retirement Account In?

No matter what type of retirement account you have, you’ll need to choose where the money inside of your account is being invested. While picking your own investments may seem intimidating, we have three easy-to-follow strategies to help you do it.

  1. Invest In A Target Date Fund
  2. Have A Robo-Advisor Do It For You
  3. Use The Asset Allocation Strategy

Let’s Get Whyze and learn about all three so you can pick the best strategy for you.

Option 1: Invest In A Target Date Fund

Instead of choosing your own investments, target date funds allow you to put your retirement account on autopilot. As popular investment options for 401(k)s, target date funds help you invest according to the date you want to retire. Hence the name “target date”. As an example, if you were planning to retire in 2055, you would choose a target-date 2055 fund. This fund will include a large percentage of stocks and a small percentage of bonds because your target retirement date is so far away (meaning you have more time to take risks). On the other hand, if you were planning to retire in 2025, you would choose a target-date 2025 fund. Because your retirement is so close, this fund will be less risky, putting your money in more bonds than stocks.

While this sounds easy enough, you’ll want to know that target date funds usually cost you more than picking your investments on your own. This is because the investment companies that create them charge management fee’s for doing all of the work. If you’re curious about what the fee of your target date fund is, look for the “expense ratio” of your fund. This will show you what percentage of your money will go to the company that manages the fund each year. As an example, if the expense ratio is 0.25, 0.25% of your money in this fund will go to the fund managers each year.

Option 2: Have A Robo-Advisor Do It For You

Choosing a Robo-Advisor to manage your retirement account is another option that will put your investment choices on autopilot. Robo-Advisors use personal details like your age, income, and how much risk you want to take, to create an investing plan for you. Using this information, they automatically invest your money in stocks and bonds. As time goes on, they periodically readjust your investment choices to make sure you are taking the right amount of risk. In return for choosing your investments for you, they charge a relatively cheap annual management fee.

Sound like a good move? Find the best Robo-Advisors here .

Option 3: Use The Asset Allocation Strategy

If you want to be more hands-on with your investments, try the Asset Allocation Strategy. This strategy recommends subtracting your age from 110 or 120 to determine how much of your investments should be stocks. The rest should then be allocated to a mix of bonds and cash ( CDs , high yield savings accounts , etc.). As an example, if you’re 28 years old, you should allocate 82-92% of your investments to stocks and the rest to bonds and cash. (An S&P 500 Index Fund is a great way to invest in stocks cheaply)

Although there is no one right way to invest your money, this rule can serve as a great starting point. It could also save you a ton in fees! Since you’ll be choosing your investments yourself, you won’t need to pay annual management fees and high expense ratios.

Bottom Line

Either of these three strategies will help you choose your retirement account investments. As you choose the best option for you, keep a close eye on your fees!