People crave safety; it’s a basic human necessity. Having a surplus of money is an ideal way to create that safety. But when it comes to building that surplus, some risk is often required. As for the safest 401(k) investment options, perceived safety can come in many forms.
Finding a place to stash your money might seem like a good plan, but is not as safe as you think. With inflation eating away at the value of your money, if you’re not compounding that value, you’re actually losing value.
Of course, playing a game of high risk and high reward has its own set of dangers. When seeking the safest 401(k) investment options, there are a few directions to go.
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These are some of the safest 401(k) investment options we recommend
Risk and reward are an inseparable part of investing in the stock market. The degree to which you can find safety depends on the strategies you are trying to implement and your behavior in the process. These are our suggestions for things to look for when beginning your 401(k) plan.
Investments that Minimize Fees
No matter what kind of fund you decide on, the most direct path to finding safety in your gains is through finding a fund with low management fees. Funds describe their management fees by a percentage. The fee percentage often appears low and may seem negligible, but each tenth of a percent can make a difference in thousands of dollars in the way your investment grows over time.
With two funds behaving mostly the same and one having significantly larger management fees, you can expect to have more money over time by investing in a fund with the lower management fees.
It is essential to state that a lower management fee does not result in poor fund management. Vanguard, a firm with a reputation for low fees, is one of the most respected and trusted mutual fund companies.
Aggressive Growth Allocation
If you have a lot of time before retirement, the aggressive growth strategy is often promoted. Even when the stock market is volatile, stocks trend in an upward direction given enough time. Even with recessions, the market recovers to a higher point than it was previously. This is why new market highs and records are never quite as impressive as they’re made out to be in the media.
The steady upward trajectory makes aggressive allocations appealing to people with a lot of time to invest. Be that as it may, the safety of these investments is genuinely dependent on the amount of time you have to invest. Aggressive funds are the most likely to experience dramatic drops in value, and you must endure those uncertain times to see all the growth down the road.
Value funds
Value funds can be some of the safest 401(k) investment options. Where aggressive funds aim for considerable growth, value funds look to invest in the safe bets that are currently trading lower than they should be.
Value investing is modeled after the strategies of Benjamin Graham and Warren Buffett. While they do not aim for the quick massive gains of aggressive funds, it is hard to argue with the growth results that these and other successful investors have found.
Value funds look to invest in stocks with high dividend yields that are trading below what the company is worth. The main principle in value investing is that stocks are not always priced appropriately, and plenty of stocks can be found at a discount to their real value.
Patience
The market has rarely ever taken money from investors. What does take money from investors is their fear when they take money out of the market after a crash. Whenever you take your money out of the market, you are locking in gains or losses depending on whether the market is up or down.
Patience is key. If you are investing money that you need to take out soon, that’s the first mistake. Investments should be made with a long term plan in mind. The safest thing you can do is to avoid investing with money you are going to need soon.
What have you found to be the safest 401(k) investment options for your temperament?
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