You may have noticed that 401(k) plans have been under fire lately, with many companies offering subpar investment choices that their employees must choose from. But how can you tell if your 401(k) plan is worth participating in?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at three ways you can assess your 401(k) plan to figure out whether it can be a key part of your retirement strategy. First, Dan recommends looking at every single investment option the plan offers, dividing them into categories based on whether they emphasize stocks, bonds, or other investments. Then, Dan suggests looking at the costs of each option, sticking with low-cost index-tracking choices where possible. Although most 401(k) plans don't yet have access to the low-cost exchange-traded funds SPDR S&P 500 (SPY 0.27%) or Vanguard Total Stock (VTI 0.18%), similar index mutual funds have many of the same features and can give you the same advantages. Finally, Dan points to the need to choose an appropriate asset allocation from among the best choices in each category, dividing your money in line with your risk tolerance and time horizon.
