A 401k can be a very powerful tool to amass large gains for retirement if done right. Here are some of the top 401k investment advice for you to maximize your 401k earnings.
1) If you know a little bit about stocks, do not do a lifecycle fund. A lifecyle fund autmatically adjusts your portfolio according to your age. That is precisely the problem with a lifecycle fund. It will not adjust your fund according to market conditions. So yes, it is nice to have the guesswork taken out for you. But that is a very passive way to invest and investing passively will not maximize your gains—no matter what investment you are in.
2) Keep as little as possible in government bonds. For the most part, government bonds return very little on your investments. Yes there has been times where government bonds close to 10%. But that has not been the case for years. Things are not looking good for bonds right now as interest rates will have to rise. And therefore bond prices will have to fall because of the inverse relationship between bond price and bond interest rate.
3) If you want a safe investment, invest in fixed income. Fixed income is the second safest investment option out there (next to government bonds) but the returns are much better most of the time. Government bonds are sometimes called fixed income but fixed income generally refers to debt securities such as corporate bonds, asset-backed securities, and credit. Fixed income funds have been known to be the ultimate fund to fight inflation.
4) If you are young, take more risks. If you are young, your risk appetite should definitely be a little bigger. That is because you have a longer time horizon to cover from your losses. Remember, no risk—no reward.
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