401K Investment Ideas for Good Money Management in 2015-2016

Here we cover some 401k investment ideas for 2015, 2016 and beyond, because good money management in this time frame could make or break your plans for retirement. Why have most investors done well in these plans in recent years when few really pay much attention to asset allocation or money management? Let’s take a look at some 401k investment ideas you might want to consider right now.

Asset allocation is the name of the game in 401k investing, and most plans offer three or four BASIC options. In order of risk, from highest to lowest, they are: stock funds, balanced funds (such as target retirement funds), bond funds, and money market funds. Some also offer a safe and stable account that pays interest. Destination retirement funds are quite popular because they manage money and allocate assets for you based on the year (such as 2040) in which you plan or expect to retire. With these funds you do not need investment ideas; you still buy and hold, right? Think again.

For the past several years, stock funds have been king due to a strong stock market, but bond funds (with less risk) have consistently produced good returns for many years. Target funds with longer retirement dates (our example is a 2040 fund) have performed almost as well as stock funds over the past few years for a reason. His professional money management consists of holding primarily stock funds in his portfolio, with the remainder invested in bond funds. What would happen to your 401k investment results if the stock market fell and interest rates rose in 2015 and/or 2016 as predicted? You are likely to suffer losses on everything except money market funds and interest-paying stable accounts.

The key to good 401k money management is avoiding big losses, especially as retirement approaches. Falling interest rates have been the trend for more than 30 years. When rates fall, bond funds make money. When rates go up, they lose money. Many investors who are currently investing in 401ks have experienced significant losses in stock funds over the years, but few have actually lost money in bond funds. Sometimes the best 401k investment ideas are focused on earning higher returns. For 2015 and beyond, defensive investment ideas aimed at protecting the value of your portfolio may be more appropriate.

First, look at your latest statement and see where your money is. In other words, look at your portfolio’s asset allocation percentages. Allocation percentages may wake you up to the fact that you are more invested in stock funds or target funds than you thought. Stock funds rose in value over 100% in this latest bull market. We’ve had two bear markets in the last dozen years that halved stock fund values, after big increases in stock prices. One of the best investment ideas for good 401k money management in 2015 and beyond: If you’re not comfortable with your relatively high asset allocation to stocks, reduce your holdings.

Bond funds and short-term target funds (such as target 2020 or less, which invest heavily in bond funds) are not as safe as most investors believe. If you’ve relied heavily on them in the past, don’t let complacency cloud your money management judgment. If interest rates rise significantly in 2015 and/or 2016, bond funds will give investors the first big losses they’ve had since the early 1980s. If your asset allocation to these funds is high, you may find that want to reduce your holdings, just in case.

The truth of the matter is that good investment ideas and opportunities that will make you more money are few and far between these days. The stock market could continue its upward trend and interest could remain near record lows for years to come. But we’re talking about a 401k investment here, and your future retirement could be at stake. So what good investment ideas are there for the money you make from your stocks, bonds, and 401k target funds?

Your 401k plan should have a money market fund and possibly a safe, stable account that pays interest. Both are safe havens and good investment ideas to cut portfolio losses if times get tough. At today’s low interest rates, money market funds pay almost nothing, but your payment automatically increases as rates rise. Don’t overlook your plan’s stable account if one is available to you. You may be able to get 4% or so in interest. You can’t find a better secure rate anywhere else.

Let’s say your 401k account is worth $100,000. Would you rather risk losing half of that or half of a smaller amount like $50,000? Good money management and asset allocation require planning. Don’t ignore your 401k. In the future, when the stock market is lower and interest rates are higher, investment ideas and opportunities will once again be plentiful. For 2015 and perhaps 2016, the best investment ideas will be geared toward increasing safety and reducing risk in your 401k asset allocation.