When it comes to building long-term wealth, few tools are as underutilized—or as powerful—as the 401(k). Whether you’re just starting your career or well into your earning years, understanding how to invest within your 401(k) is key to making the most of this opportunity.
Why Your 401(k) Matters
Your 401(k) isn’t just a retirement account—it’s a tax-advantaged investing machine. Depending on your plan, you might contribute pre-tax dollars (reducing your current taxable income) or opt for Roth contributions, which grow tax-free and can be withdrawn tax-free later.
And when your money grows inside the account, it enjoys the full benefits of compounding—gains on gains over decades of investing.
How to Choose Investments
Most 401(k) plans offer a mix of investment options. The most common is the target-date fund, which automatically adjusts based on your expected retirement year. These are great for “set it and forget it” investors.
If you prefer more control, you can build a custom portfolio using mutual funds or index funds. When doing so, consider:
Your risk tolerance
How well your investments are diversified
The fees attached to each option
Maximizing Contributions
At a minimum, contribute enough to receive your full employer match—this is essentially free money and an instant return on your investment.
If you’re able to, consider working toward maxing out your annual contribution limit. Over time, these larger contributions—combined with tax savings and investment growth—can dramatically change your retirement picture.
Common Pitfalls to Avoid
Even savvy savers can slip up when it comes to 401(k)s. Keep an eye out for these common missteps:
Overlooking plan fees or choosing high-expense funds
Overloading on employer stock, which concentrates risk
Forgetting to adjust your allocations as you get closer to retirement age
Ongoing Management
Your 401(k) isn’t a “set it and forget it” forever tool. As your life changes, your investments should too.
Rebalance your portfolio at least once a year to maintain your desired risk level
If you change jobs, consider whether it makes sense to leave your 401(k) where it is, roll it into your new plan, or into an IRA
Want to Dig Deeper?
We unpack investment strategies like this all the time on the CAPitalize Your Finances podcast. From 401(k) tips to market mindset shifts, it’s designed to help you build wealth with intention—whether you’re just getting started or fine-tuning your plan.
🎧 Available now on Spotify, Apple Podcasts, and YouTube.