Once you make a contribution, what do you do with the dollars in your account? Many people get confused and believe that the 401(k) itself is the investment. In reality, you can think of your 401(k) as a basket that holds your investments. You can invest your 401(k) money into stocks, bonds, mutual funds, and a variety of other asset classes. Each 401(k) plan will have different investment options, so you’ll want to check with yours to see your choices. Your age and risk profile will impact the ratio of your investment in riskier assets (like stocks) and safer assets (like bonds). As a young person with many years before retirement, you can afford to withstand some fluctuation in the markets and can take a riskier approach. As you age, you’ll want to shift some of those riskier assets into safer bets that won’t be negatively impacted by market volatility.
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