Retirement Planning
April 27, 2023

Choosing 401(k) Funds

Picking investments as an individual is difficult unless you specialize in investing.
Stewart Willis

Many of us have 401(k)s through our employers. When you’re first eligible to begin contributing to your 401(k), you’re asked to pick funds. For most, this is a bewildering decision. Employees are often presented with a list of funds they’ve never heard of, using terms they aren’t familiar with, but nonetheless they’re expected to somehow figure out which ones are the best choices.

If they’re lucky, their benefits program will give them access to a financial advisor to help them choose, but often they find themselves on their own. If that describes you, read on for some helpful tips to choose the funds that best fit your unique situation.


Investors with a good understanding of their personal finance and investments will often read Morningstar to see how their 401(k) options have performed in the past and to make sure the funds are well-rated. That’s not a bad start, but there are some pitfalls to watch out for.

Down at the bottom of this blog post is a disclaimer that says “past performance is no guarantee of future results,” and that isn’t just there because some lawyers insisted on it. Relying solely on the historical performance of a particular asset and assuming it will continue to perform well in the future can be dangerous. 

A great example is 10-year Treasury bonds. For 35 years, interest rates generally fell, which made older Treasury bonds more valuable; if you buy a bond at a 15% rate of return, then those rates drop, you can often get paid a premium for your higher-interest bonds. That’s why, for decades, you’ve heard that Treasury bonds are safe, stable and a good refuge when the stock market falls.

However, recently we saw long-term bond values drop alongside the market! Fast forward to earlier this year, and an entire bank collapsed because it had too much invested in bonds that were suddenly hard to sell at a profit. People still saying that bonds are completely safe are basing their assertion on historical truths that are no longer relevant.

Traditionally “safe” investments are not as safe as you might think right now, but you wouldn’t know it simply by looking at past performance.

Understand Your Risk Tolerance

My clients would tell you I’m fond of saying that, for a little over a decade, even a blind chicken could have made money in the stock market. We had unprecedented growth in almost all areas, which meant that people who knew absolutely nothing about investing had a decent chance of making money in the market. 

When the market is experiencing an upward trend for so long, people often begin to think they’re a lot more risk-tolerant than they really are. They start investing more heavily under the assumption that investing is easy and they will grow their wealth faster if they invest more. However, they forget that risk means… Risk!

When the market then becomes volatile as it did during and after the pandemic, they suddenly discover all that risk they took on feels very uncomfortable. They want to eliminate the risk, which often means selling their positions. The trouble is that this panic-inspired selling often means they sell assets at a lower price than they originally bought them. 

We call that “locking in your losses.” Once you sell an asset at a loss, you’re no longer able to recover what you lost should the market begin to climb again. Locking in losses often happens when inexperienced investors make emotional decisions out of panic, and that panic comes about because they aren’t nearly as risk-tolerant as they thought they were!

In short, think very carefully about how much risk you can tolerate. Doing so could save you from harming your financial position through unwise investment decisions should volatility strike.

Consider what you’re investing in

Investing is about more than just looking at performance charts and picking investments that have gone up the most. The truly savvy investor understands what’s behind those numbers. Do you believe in the organization or asset you’re investing in? People in the early 1980s who believed the personal computer would be a blockbuster success did very well if that understanding caused them to buy Microsoft stock. 

On the other hand, many who only looked at the meteoric gains of cryptocurrencies, and then invested without understanding exactly what cryptocurrencies are, found themselves quite despondent when crypto recently collapsed! Clearly, an understanding of the real-world factors underlying the assets in which you invest is vital, and that can only come about by carefully researching the companies behind those assets.

Get Professional Help

The bottom line is that picking investments as an individual is difficult unless you specialize in investing. If you don’t, it’s a very good idea to seek investment advice from someone who does. However, it’s also important to understand who you’re getting that advice from!

At Asset Preservation Wealth & Tax, our advisors are fiduciaries, meaning we are obligated by the licenses we hold to work solely in the best interest of our clients. Financial professionals with non-fiduciary designations are not constrained by that requirement. If you can, it’s important to seek advice from a professional who will put your interests above their own.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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