How to pick investments in your 401k (4 secrets you need to know)

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Most people who have the option to invest in a 401k, are doing it. Unfortunately, most people have no idea what they’re invested in or even worse, they don’t know that a large portion of their money is going to fees.

An article published in Business Insider shared that fees can cost you more than $150,000 in retirement. In this post, I’m going to share how to pick the best investments in your 401k, so you don’t lose your hard-earned money.

Proverbs 18:15, tells us “Intelligent people are always ready to learn. Their ears are open for knowledge.” What I hope to do in this post is share some knowledge that will prevent you from working for 40 years, only to find out that you don’t have enough to retire — all because you had no clue what was happening with your money.

Cynthia gave me a call. Cynthia is 31 and lives in San Diego. She called me, because she had been listening to the news and heard how great the stock market was doing. However, when she looked at her 401K, her money wasn’t growing at all. She didn’t understand why, so she reached out to me to review her 401K. I found that she was making the same four mistakes that I see all the time.

These mistakes had cost her several thousand dollars over the last few years. I was able to help her adjust her 401k, and after just one year her account had grown more than it had in the previous four years combined.

Now, if you want to make sure you’re picking the right investments in your 401k here are four things you need to know.

Low Fees

The first thing is you must pay low, low, low fees. Because the fees are taken out automatically, you most likely don’t realize you pay fees in your 401k. Although you may not notice it, fees will impact you over the long term in a major way.

Fees are buried in long, hard-to-understand documents, and they eat away at your returns year-after-year. Here is a list of some of the fees you may be paying in your 401k, and you don’t even realize it:

Administrative expenses

Investment transaction fees

Asset and revenue sharing

Audit cost

Fiduciary expenses

Consulting fees

Fund tax liability

Every 1% increase in fees can cost you 10 years of retirement income. Here is an example of how that works…

David, Tyler, and Joe, at age 35, all have $100,000 to invest. Each person selects different mutual funds. All three are lucky enough to have equal performance in the market of 8% a year. At age 65 they get together to compare account balances, and this is what happened…

Now you see the major impact fees can have on you over the long term.

No Bonds

The next secret you need to know is at your age, in your 20s and 30s, you should not be invested in bonds. Most people are automatically placed in target-date funds that invest a percentage of your savings into bonds. As you get older, the amount of bond holdings increases. This can be a major drag on your long-term performance.

Millennials have 40 or even 50 years until retirement. You shouldn’t even be thinking about bonds as a long-term investment.

If you were invested in 50% stocks and 50% bonds, from 1926 to 2016, the average annual return would’ve been 8.3%. A $1,000 investment in 1926, would be worth $1,370,859 in 2016.

If you were invested in 100% stocks, from 1926 to 2016, the average annual return would’ve been 10.2%. A $1,000 investment in 1926, would be worth $6,256,673 in 2016.

That is the impact bonds could have on you over the long term!

Typically, people invest in bonds when they want their assets to start generating income. When you’re focused on trying to grow your money as much as possible, so you have money to live on later in life, leave bonds alone.

Focus on Growth

The next secret, you need to know is to focus on growth. Growth stocks tend to have more volatility in the short term, but over time they will outperform all other assets.

Let’s look at a 10-year performance comparison, between growth stocks and the overall stock market, to see how they perform.

I compared VUG (Vanguard Growth ETF) and SPX (S&P 500 Index) from August 31st, 2009 to September 23rd, 2019. You see VUG was up 254%, while the S&P 500 was up only 193%.

By focusing on growth, instead of investing in the overall market, you were able to get a substantially higher return.


The fourth secret you need to know is to diversify. International growth, growth and income, small-cap growth, and large-cap growth are different fund objectives that will outperform one another in different years.

Let’s look at a chart.

This chart was produced by Black Rock. It shows the historical annual performance of various asset classes over 20 years. This chart reveals that the top performing assets change almost every year, and that’s why diversity is important.

Remember when you diversify, you still want to focus on growth. Again, international growth, growth and income, small-cap growth, and large-cap growth are all fund categories you can look into.  

Pick The Best Stocks And Invest With Just $5

If you’re serious about investing you should also be investing outside of your 401k. To help you do that the right way, I put together a free master class called The $5, 5-minute Investing Plan.

It will literally show you how you can start investing, outside of your 401k, with this little as $5, in an account that will only take you about five minutes to set up. I show you how to pick the right investments for the account. Here is the link to start watching the free masterclass:

Let Me Help You Develop Your Personal Investing Strategy

Now, if you’re in a position like Cynthia, and you want some true guidance to ensure you are using the right investing strategy, learn about our Investment Planning Service. You can visit to learn how we review your 401k, help you set up an IRA, give you options to invest in our private funds, and over time help you start investing in rental property so you can generate income for the rest of your life.

Again, you can visit to learn more about our Investment Planning Service.

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