Investment Options

Publications and Resources

401(k) Fee Disclosure Form. ACLI, working with the American Bankers Association and the Investment Company Institute, developed a 401(k) Fee Disclosure Form designed to assist companies in making informed cost-benefit decisions when selecting 401(k) service providers.

Unlike employees covered by defined benefit plans, most defined contribution plan participants decide where to invest their money. Plans usually offer several investment options reflecting varying levels of risk and reward. Investment options typically offered in a 401(k) are:

  • Stock mutual funds. Money is invested in shares of publicly traded companies. Different types of stock funds include: large company (large cap), small company (small cap), aggressive growth funds, and index funds.
  • Company stock funds. Stock offerings from publicly traded companies to employees. 
  • International stock funds. A large proportion of assets are invested in companies outside the United States. Unlike an overseas fund, some money is invested domestically as well.
  • Money market funds. Money is invested in short-term securities with low-risk, low-return potential. 
  • Bond funds. Money is invested in bonds providing higher income than money market funds and some potential for growth, but are riskier than money market funds and GICs.
  • Guaranteed interest contracts (GICs): GICs combine features of money market and bond funds. Money is invested in longer-term securities and therefore can credit higher interest rates. Unlike bond funds, which can drop in value if interest rates rise, GICs guarantee both principal and interest.
  • Hybrid funds. Hybrid funds offer a mix of stocks and bonds, often giving the fund manager some discretion in allocating assets (also called balanced, active balanced or asset-managed funds).
  • Fixed-income accounts. These accounts may be funded by money market funds, bond funds, or guaranteed interest contracts (GICs) offered by insurance companies.

Many 403(b) and 457 plans offer a similar range of options, with the exception of a company stock fund.

Although your employer may match a percentage of your contributions, and is obligated to oversee the investment options it makes available, your company generally is not responsible for the results of your investment choices. The amount of accumulated retirement savings depends on the performance of your selections. Several factors should guide your investment decisions--including age and personal risk tolerance.

How to Invest Your Contributions

Financial planners generally agree that a diversified portfolio of investments is key to a well-structured retirement savings plan. Several factors should guide your decisions on investment mix, especially:

  • Your age. If you are decades away from retirement, experts advise investing more of your money in equities. If you are closer to retirement, consider locking in your earnings and securing steady growth by investing some of your money in fixed-income funds.
  • Your risk tolerance. If having regular, guaranteed returns is very important to you, experts say you should consider putting more of your retirement savings into a fixed-income account. If you have a tolerance for risk and are willing to ride the ups-and-downs of the stock market, consider stocks or hybrid funds.

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