How do 401(k)s work?

Usually 401 (k)s allow you to choose investments from a small number of preselected funds, such as index funds, which track major market indexes, or target-date funds, which select a mix of investments appropriate for your age.

Which 401(k) plans offer the best investment options?

Mutual funds are the most common investment option offered in 401 (k) plans, though some are starting to offer exchange-traded funds (ETFs). Both mutual funds and ETFs contain a basket of securities such as equities. Mutual funds range from conservative to aggressive, with plenty of grades in between.

How do 401(k) options work?

The 401 (k) provider will list the options in your plan. “Most of the time they will be sorted by key asset classes such as domestic stocks, large-cap, small-cap, alternatives and bonds,” says Alex Caswell, a wealth planner at RHS Financial in San Francisco. You’ll want to keep the big picture in mind as you choose your investments.