401k Rollover Advice - Should I Invest In Mutual FundsWith the decline of employer pension plans, the 401(k) (and 403(b) and TSP, etc) has become the primary way people save for retirement.

One big pro of the 401(k) is that you are in control of how much you contribute to it and how you allocate it across the choices given to you by your employer.

Another pro of the 401(k) is that when you retire you take it with you and can roll it into an IRA. With an employer provided pension plan you are at the mercy of the employer being able to fulfill its promises to pay you an income for the rest of your life. If they can’t meet the promises they made, tough luck.

Not so with the 401(k). You can take that bad boy with you and roll it right into an IRA, and it will be there for you to help you in retirement… regardless of what happens to your old employer.

The downside to the 401(k) is also that you are in control of how much you contribute to it. If you don’t contribute to it don’t be surprised when you reach retirement age and there’s no savings for you to live on.

Also, with a 401(k) you must decide how to invest it amongst the different options your employer plan provides. And then later on you must decide how to invest it when you leave your employer and roll it into an IRA. Hint: you’ll have a dizzying array of investment options when you rollover to an IRA.

Should I Invest My 401(k) in Mutual Funds?

The question comes down to how to invest your 401(k) funds. In this 3 minute video I answer the question of “Should I Invest My 401(k) in Mutual Funds?”

Check it out below.

You have to keep in mind there are a lot of different types of mutual funds:

  • Equity Funds
  • Bond Funds
  • Index Funds
  • Sector Funds
  • Balance Funds

Just to name a few…

And not all mutual funds are as risky as others. Some are more conservatively managed and are designed to have lower volatility.

So you really have to know what your risk tolerance is before you can determine which funds to buy. And you have to make sure the particular fund fits well in your diversified portfolio.

401(k) Rollover To IRA

When you roll your 401(k) into an IRA you will have many more options to invest your savings. With a 401(k) your investment options are limited by what your employer plan offers you. Not so with an IRA. You have a lot more options with an IRA.

So you need to have some idea of your risk tolerance, as well as the specific income needs and goals you have for retirement, when you roll into an IRA. You want your investment choices in your IRA to match up with helping you achieve your goals.

How To Answer This Question

Here are some guidelines to help you answer the question, “Should I invest my 401(k) into mutual funds?”

Determine your retirement goals – This includes the amount of income you will need to supplement your Social Security income and pension (if you have a pension). This will also include if you have a goal to set aside a portion of money for health related expenses. Or maybe you want to set aside a portion for a legacy to your children.

Assess your personal financial situation – What amount of guaranteed income will you have? What is an estimate of your monthly expenses? How much in savings do you have as you enter retirement?

Understand your risk tolerance – Take a risk tolerance questionnaire. Your advisor can guide you through one. It will help you avoid investments that are too risky for your preferences.

Determine the level of growth your portfolio needs – If you have enough retirement savings such that you don’t need much growth to cover your needs, do you really want to invest it in risky assets that could lose value? That could jeopardize the success of your retirement. Also, if you need a certain level of growth out of your portfolio, you want to make sure you aren’t invested too conservatively, making that level of growth unlikely.

After you have determined the above factors for your situation, you can then decide which financial products will help you meet your goals. It may include mutual funds, and it may not.


If you know anyone that has questions about their 401(k) then be sure to forward this article to them. We can reach more people together than I can by myself.

There are 2 more things to mention about this topic of 401(k)’s.

First, I have over 20 videos on 401(k) advice that will be coming out on my YouTube channel over the next 2 ½ months. The above video was the first of this series designed to help people out and answer their questions.

I’m not going to put all these videos on this website because, frankly, I think it would drive you all crazy to see over 20 videos on the same general topic over the next 2 months. So if you want to stay up to date on all these videos, be sure to subscribe to my YouTube channel by clicking here:


Second, if you are interested in the FREE pdf download that is offered at the end of each of these videos you can get it by CLICKING HERE.

It is called the “401(k) Rollover 10-Point Checklist For Baby Boomers.” If you have questions about rolling your 401(k) over, then you will definitely want to download this pdf to answer those questions.


Chris Hammond