Clueless About Investing Your 401(k)? Here’s a Good Solution | Personal-finance

Clueless About Investing Your 401(k)? Here’s a Good Solution | Personal-finance

Most 401(k)s offer a mix of actively managed mutual funds and index funds, which are passively managed. And if you have no idea what to do with your retirement savings, it pays to favor the latter.

The reason? Index funds charge much lower fees than actively managed funds since they don’t employ professional fund managers to hand-pick their contents. Rather, index funds are set up to track existing indexes, like the S&P 500, and that allows them to keep their expense ratios down. (An expense ratio is basically the fee you’re charged to invest in a given fund.)

One main difference between actively managed mutual funds and index funds, other than fees, is that active funds have the goal of beating the broad stock market’s performance. Index funds, on the other hand, seek to match it. But index funds frequently manage to outperform actively managed funds despite that difference in strategy, so if you load up on index funds in your 401(k), you won’t necessarily be losing out on performance.

What about target date funds?

Another option for your 401(k) is to put your money into a target date fund. As the name implies, these funds adjust your investments to meet certain milestones — in this case, retirement.

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