What are the best ways to pick stocks for my 401k?
Answers | 2
Typically 401k plans offer a selection of mutual funds that pool investors money to purchase stocks or bonds rather than allowing for direct investment into individual stocks. When comparing the mutual fund options available many companies offer "target portfolio's" which will invest aggressively when you have a long time until retirement and become more conservative as your "target" retirement age approaches. These funds may work well for an investor who would prefer not to spend a lot of time researching choices.
If choosing individual funds to invest in some things to consider are diversifying across different asset classes, the fees the funds charge, and performance of the funds. The Morningstar website is a great resource to learn more about individual mutual funds as is speaking with a financial professional.
If you still want to use stocks there is no magic formula, which stock depends on how much risk you can accept, and what your orientation ( value or growth) and time frame are (short term or long term), how important are dividends (half of stock performance comes from dividends).
The most important trait to have if you are looking at individual stocks is to know yourself and what your behavioral reaction will be to extreme changes in price.