Investing in Your 401(k): Are You Asking the Right Questions?

When it comes to your 401(k), what’s the first thing you look at? If you’re like most people, your eyes probably jump straight to the performance charts. You’re looking for those impressive upward trends, those eye-popping returns from last year. But what if I told you that you might be asking the wrong questions? I've seen it time and time again—people fixate on past performance instead of the factors that truly drive retirement success.

It's an easy trap to fall into! But focusing only on which fund did best last quarter is like trying to drive a car by only looking in the rearview mirror. It tells you where you’ve been, not where you’re going.

Today, we're going to shift your focus. We’ll explore the questions you should be asking to maximize your 401(k) and build a secure financial future. We’ll cover why your savings rate matters more than fund performance, simplify your investment choices, and touch on one crucial step that far too many people forget. Let's get started!

It’s Not Just Performance, It’s Participation!

Here's the big secret: the single most powerful factor in your 401(k)’s success isn't picking the "perfect" fund. It's you! Your consistent contributions and savings habits will have a far greater impact on your retirement paycheck than chasing last year's winners. So, let's put performance on the back burner for a moment and focus on three foundational pillars.

1. Build Your Emergency Fund First

Before you even think about ramping up your 401(k) contributions beyond the match, you need a safety net. An emergency fund is non-negotiable! This is your "life happens" fund—for unexpected car repairs, medical bills, or a sudden job loss. Without it, where do you think you'll turn for cash? That’s right, your retirement account.

Taking a loan or an early withdrawal from your 401(k) is counterproductive to your long-term financial success. You’ll face taxes, penalties, and—worst of all—you’ll rob your future self of compound growth. A solid emergency fund of 3-6 months' worth of living expenses protects your long-term investments from your short-term needs. Protect your future by preparing for the present!

2. Never, Ever Leave Free Money on the Table

Does your employer offer a 401(k) match? If the answer is yes, a top priority should be contributing enough at least to get the full match. This is a 100% return on your investment, instantly!

Think about it this way: if your employer matches 100% of your contributions up to 5% of your salary, and you only contribute 3%, you are literally walking away from a 2% raise. It's "free" money! Before you worry about asset allocation or expense ratios, make sure you are getting every single penny of that employer match. It is one of the single best investments you can make.

3. Focus on Your Savings Rate

Okay, you have an emergency fund and you're getting the full employer match. Now what? Now, it's all about your savings rate—the percentage of your paycheck you're putting away for retirement.

While past performance is unpredictable, your savings rate is something you control completely. Financial experts, like those at Fidelity, often recommend a great target to shoot for: aim to save 15% of your pre-tax income for retirement. This includes your contribution and your employer's match.

Does 15% sound like a lot? It might! But you don't have to get there overnight. Start where you are and try to increase your contribution by 1% every year. Many 401(k) plans even have an "auto-increase" feature that does this for you. A small, consistent increase can have a massive impact over time thanks to the magic of compounding. Your savings rate is the engine of your retirement plan—the more fuel you give it, the further it will take you.

Keep It Simple: The Power of Target-Date Funds

Now that we’ve covered the most important factors, let’s talk about where to actually invest your money inside the 401(k). Feeling overwhelmed by a list of 20 different mutual funds? You’re not alone! The good news is, there are simple and effective option available in most 401(k) plans: the target-date fund.

A target-date fund is a "set it and forget it" solution. You simply pick the fund with the year closest to your expected retirement date (e.g., "Target Date 2055 Fund"). That's it!

The fund manager does the rest. When you're young and have a long time until retirement, the fund is invested more aggressively, with a higher allocation to stocks for maximum growth potential. As you get closer to your target retirement date, the fund automatically and gradually becomes more conservative, shifting more assets into bonds to protect your principal. It’s a professionally managed, diversified portfolio all in one fund. It handles the rebalancing for you, so you don't have to!

Are there times where a target date fund may not make sense, absolutely! This could be the case if you are desiring to be a more aggressive investor to catch up in terms of contributions and growth rate. Alternatively the opposite as well, if you are desiring to be more conservative in your approach this may not be the best fund for you. This is where working with an investment professional or utilizing your 401(k) platform's tools and resources can be helpful in affirming your investment selection.

The One Thing Many Forget: Name Your Beneficiaries!

This final point is so simple, yet so incredibly important. You should designate beneficiaries for your 401(k) account. Life is unpredictable, and you need to ensure your hard-earned money goes to the people you intend it to.

Your 401(k) beneficiary designations typically supersede your will. That means if you named your ex-spouse on your 401(k) ten years ago and forgot to update it, they could get the money—even if your will says otherwise.

Check your beneficiaries today. Log into your 401(k) account and review who is listed. Have you gotten married? Divorced? Had children? Any major life event is a perfect time to review and update your designations. It takes five minutes, and it provides peace of mind and ensures your legacy is protected. Don't put it off!

Your Path to a Secure Retirement

Investing in your 401(k) doesn't have to be complicated. By shifting your focus from chasing performance to building a strong foundation, you put yourself in the driver's seat.

Let’s recap the action plan:

1. Build that emergency fund to avoid having to dip into your 401k plan prematurely.

2. Contribute enough to get the full employer match. It’s "free" money!

3. Work your way up to a 15% savings rate. Automate it if you can.

4. Consider a target-date fund for a simple, diversified strategy.

5. Check and update your beneficiaries right now!

You have the power to build the retirement you dream of. It starts not with complex charts, but with these simple, powerful steps.

Working with a financial advisor can be a game-changer when it comes to achieving your financial goals. A good advisor acts as your personal guide, helping you create a plan tailored to your unique situation and future aspirations. They can offer expert insight on investments, retirement strategies, tax planning, and more, ensuring you make informed decisions every step of the way. Plus, they help take the stress out of financial planning—you don’t have to figure everything out on your own. Whether you're just starting or looking to refine your strategy, partnering with a trusted professional can provide clarity, confidence, and the support you need to reach your financial dreams.

Disclosure: The content in this article is for educational purposes only. Please seek personal recommendations from a qualified financial advisor for advice to achieve your specific objectives.