Which investment options you choose in your 401K or 403B plan can have a significant impact on how your account will perform in the long run. It is recommended that the assets in the 401K plan be allocated according to the time horizon and risk tolerance of the account owner, based upon an asset allocation model. The asset allocation model has been shown to be one of the most critical determinants of long term investment portfolio performance. Many 401K plans have limited investment options, although in most cases (but not always) they will have fund options available for each major asset class. Sometimes there will be an option to invest in a self directed brokerage account, which allows the plan participant to purchase securities on the market, as opposed to choosing the from among the funds which are available in the plan. We recommend following the steps below when determining the appropriate investment options. We emphasize the importance of consulting the appropriate advisers in executing this process:
(1) Determine the appropriate asset allocation based upon your risk tolerance, time horizon and investment and financial goals
(2) examine the fund options in your 401K plan, and perform due diligence on the funds as necessary.
(3) allocate assets among funds as appropriate. Investigate and allocate to self directed brokerage option within 401K if necessary