If you have a self-directed 401(k), you will be asked to decide how your money should be invested. You will receive a form, normally on a quarterly basis, and perhaps a prospectus, and will then need to select your options. Investing your 401(k) funds is no different from other investment decisions. You need to do your homework and evaluate your options before making commitments. Wise choices made when investing your 401(k) fund lead to growth, while poor choices can lead to disaster.

Many people barely glance at the investing information they receive. All too often, decisions are not made until they are actually filling out the form. Investing your 401(k) is worth more than a five minute evaluation. Retirement may seem a long way off, but the years have a way of passing quickly, and before you know it, you will need to be living off of the money you are investing today. Take the time to make the best decisions you can.

A self-directed 401(k) does not mean that you are investing in individual stocks. Instead, you are normally asked to designate a percentage of your money to be invested in specific categories. These vary, depending on your fund administrator, but usually include high growth stocks, mutual funds, blue chip stocks, money markets, overseas investments, and bonds. All of these have differing risks and potential returns, and when investing you should evaluate each category carefully.

Blue chip stocks are those that are established companies with a proven track record. Investing in these is one of the safest choices you can make. However, they seldom post dramatic returns. These are good choices if you are close to retirement or if you simply do not want to take risks when investing. Most blue chip companies are household names and have been in business for many decades. The likelihood of one of these going out of business is practically nil.

High growth stocks are typically newer companies. They are considered as having the potential to offer huge returns on investments, but there is more risk involved as well. Many of the companies that closed their doors during the "dot-com bust" were high growth. Certainly there is money to be made by investing in high growth stocks, but since the risk is also higher, you should monitor the companies and the overall market more carefully. These are usually best used by younger workers who have many years before retirement. That way, should investing in these stocks prove to be a mistake, your 401(k) has time to recover.

Mutual funds are a good investing choice for all. Typically, the returns will be a little better than blue chip stocks but less than high growth stocks. There is usually a low level of risk involved, but before investing, you should research the specific fund you are buying. Some of these have been around for fifty years or more, and their records are easy to evaluate. Generally speaking, the longer a mutual fund has been in existence, the safer it is. One that has only three or four years of history is therefore a higher risk than one that has existed for forty years. With the younger fund, there simply is not enough information on record to know how it is going to perform.

Investing your 401(k) is an important part of your financial security. You should take the time to make wise decisions and make sure you find answers to any questions you might have.

Be sure to visit our website for information on drip coffee makers reviews at cuisinart coffee makers.  http://dripcoffeemakersreview.com/

Article Source: http://EzineArticles.com/?expert=Jason_Rodriguez