401K investors have choice of possible strategies when deciding which funds to invest in their 401K. Each of the choice has certain advantages and certain risks. Understanding the available choice and then selecting a approach which best suits your objective is the key.
The strategic choices available can be broadly listed as follow:
- Target Date funds
- Lazy Portfolios
- Index funds based portfolio
- Popular mutual fund newsletter approach.
- William O'Neil mutual fund approach
- Your own custom developed approach.
Each of these approach is workable. But to make them work you need to understand the workings of each of the approaches. Each of these approach is based on certain key assumptions. The returns you will get is a function of how those assumptions work for a particular market situation or for your personal situation. Besides the key assumptions the actual execution of those key assumptions also matters.
In order to understand these strategic choices and to develop your own plan, you need to open the hood of each of these approach and look at their inner working. If you do that you will become a knowledgeable investor.
Information to do this kind of analysis is freely available on the net. Lot of this information is available within your own plan document in many cases. But most people are searching for simple solutions without going through the learning process. So even if someone gives them simple solution they do not understand it or can make it work for them. Average investor has very little understanding of this. Ignorance leads to them being influenced by others or making wrong choices.