30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Chapter 17. Select the Best Investments for Your Company Retirement Plan

In talking with friends and family members about how they manage their 401(k) investments, it's clear that investment styles are highly personal, reflecting both disposition and how much time a person has on his or her hands.

A small percentage of the 401(k) investing population is what I would classify as downright hyperactive, exemplified by my engineer neighbor, who used to spend part of his workdays day trading stocks with his buddies. Taking cues from a computer program that one of them had written, they'd jump into a stock when the market opened and be out of it later in the afternoon. (I haven't heard much about this pastime recently, so it's a good bet that the bear market has cooled the engineers' enthusiasm for day trading.)

Then there's the commitment-phobe, who's so worried about making poor choices or so unsure about her abilities that she takes tiny positions in many different investments. I've even seen 401(k) plans in which the participant selected funds geared toward multiple target dates: for example, a 10 percent position in the 2020 fund, a 10 percent stake in the 2030 fund, and so on. You can do worse things than overdiversify, and this investor may ultimately be better off than the day trader, but the commitment-phobe's strategy clearly isn't ideal, either.

Another segment of the 401(k) investing population falls into the "just can't be bothered" camp. Because of their own real or perceived ...