Evaluating new fund options in a 401(k) plan
Choose between actively managed and index funds
The emphasis on containing costs is driving more plan sponsors to add index funds to their 401(k) plan lineups, Nauta says. "Index funds tend to be lower cost than actively managed funds, and that's a good thing for investors, who will save money."
In addition, index funds don't try to outperform the market -- a difficult task at the best of times. Instead, index funds attempt to replicate the performance of a particular market index. That index might reflect the market as a whole, such as the Russell 3000 index, or it may focus on the largest companies in the United States, as the Standard & Poor's 500 does.
Research reveals that most actively managed mutual funds -- those with managers who pick stocks, bonds, commodities or other securities according to a specific strategy -- don't outperform the market. So picking index funds can work for your portfolio because you'll get the performance of certain sectors of the market at a lower cost, says Nauta.
Maximize your 401(k), and retire in style
No matter where you are in your career, be sure to make the most of your workplace retirement plan.