The Best 401(k) Allocation Approaches for Low-Effort Investing

Is a 401(k) Worth It?

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You don't have to master investing to allocate money in your 401(k) account in a way that meets your long-term goals. Three low-effort 401(k) allocation approaches and two additional strategies can work if the first three options aren't available to you or right for you.

Key Takeaways

  • Target date funds automatically choose how much of which asset classes you'll own based on the projected year when you want to retire.
  • Balanced funds also automatically maintain diversification and rebalance your money over time in a way that's neither too aggressive nor too conservative.
  • Model portfolios work on a mathematically-constructed asset allocation approach to achieve the right mix of assets for your comfortable level of risk.
  • You might consider working with a financial advisor to devise an allocation approach that's based on your own personal goals, needs and financial situation.

Basics of 401(k) Allocation

You can decide where the money you contribute to the account will go by directing it into investments of your choice when you allocate your 401(k).

At a minimum, you might want to consider investments for your 401(k) that contain the mix of assets you want to hold in your portfolio, such as stocks and bonds, in percentages that meet your retirement goals and suit your tolerance for risk.

Easy 401(k) Allocation Approaches

You can take several 401(k) allocation approaches to achieve your investing aims without much effort. Some are more hands off than others.

Use Target Date Funds To Retire on Your Terms

Target date funds are geared toward people who plan to retire at a certain time. The term "target date" means your targeted retirement year. These funds can help you maintain diversification in your portfolio by spreading your 401(k) money across multiple asset classes, including large-company stocks, small-company stocks, emerging-markets stocks, real estate stocks, and bonds.


You’ll know your 401(k) provider offers a target-date fund if you see a calendar year in the name of the fund, such as T. Rowe Price's Retirement 2030 Fund.

Target date funds make long-term investing easy. Decide the approximate year you expect to retire, then pick the fund with the date closest to your target retirement date. Select a target-date fund with the year "2030" in its name if you plan to retire at about age 60, and that will be near the year 2030. You don't have to do anything other than continue contributing to your 401(k) after you pick your target-date fund. It effectively runs on autopilot.

The fund automatically chooses how much of which asset class you own. The fund rebalances itself over time. Money is automatically moved between asset classes in a way that supports your goal to retire by the target date.

This diversification and automatic rebalancing mean that a target-date fund can be the only fund in your 401(k) account. The fund will progressively become more conservative as you near your target date, and you'll be exposed to less stock and more bonds. The goal of this 401(k) allocation approach is to reduce the risk you take as you near the date when you want to begin withdrawing from your 401(k) money.

Use Balanced Funds for a Middle-of-the-Road Approach

A balanced fund allocates your 401(k) contributions across both stocks and bonds, usually in a proportion of about 60% stocks and 40% bonds. The fund is said to be "balanced" because the more conservative bonds minimize the risk of the stocks. A balanced fund usually won't rise as quickly as a fund with a higher portion of stock when the stock market is quickly rising. Expect that a balanced fund won't fall as far as funds with a higher portion of bonds when the stock market is falling.

Choosing a fund with “balanced” in its name is a good choice if you don’t know when you might retire and you want a solid approach that's not too conservative and not too aggressive. Vanguard Balanced Index Fund Admiral Shares is an example. This type of fund does the work for you, similar to a target-date fund. It automatically maintains diversification and rebalances your money over time to maintain the original stock/bond mix.

Use Model Portfolios To Allocate Your 401(k) Like the Pros

Many 401(k) providers offer model portfolios that are based on a mathematically-constructed asset allocation approach. These portfolios have names that include terms like conservative, moderate, or aggressive growth. They're crafted by skilled investment advisors so each model portfolio has the right mix of assets for its stated level of risk.


Risk is measured by the amount the portfolio might drop in a single year during an economic downturn.

Most self-directed investors who aren't using one of the above 401(k) allocation approaches or who aren't working with a financial advisor might be better served by putting their 401(k) money in a model portfolio than trying to pick from available 401(k) investments on a hunch. Allocating your 401(k) money in a model portfolio tends to result in a more balanced portfolio and a more disciplined approach than most people can accomplish on their own.

Spread Your 401(k) Money Across Available Options

Most 401(k) plans offer some version of the choices described here. A fourth way to allocate your 401(k) money if yours doesn't is to spread it out equally across all available choices. This will often result in a well-balanced portfolio. Put 10% of your money in each if your 401(k) offers 10 choices

You might also consider picking one fund from each category. This might mean one from the large-cap category, one from the small-cap category, one from international stock, one from bonds, and one that's a money market or stable value fund. You’d put 20% of your 401(k) money into each fund in this scenario.

This method works if there are a limited set of options, but it requires much more time and research if there are an array of options. It's not as dependable as the first three because the asset mix might not be suitable for your retirement goals. You'll have to rebalance the portfolio to maintain a certain percentage of each asset category over time.


It's always recommended that you complete an online risk questionnaire or consult a knowledgeable investment professional before haphazardly choosing stock investments that may lose you money.

Work With an Advisor for a Tailored Allocation Strategy

You can have a financial advisor recommend a portfolio that's tailored to your needs, instead of or in addition to these options. The advisor may or may not recommend any of these allocation strategies as being right for you. They'll usually attempt to pick funds for you in a way that coordinates with your goals, risk tolerance, and your investments in other accounts.

An advisor can be of great help in coordinating your choices across your household if you're married and you and your spouse each have investments in different accounts. But the outcome won't necessarily be better and your nest egg won't necessarily be larger than what you can achieve through the first four 401(k) allocation approaches.

Frequently Asked Questions (FAQs)

How Much Should I Contribute to My 401(k)?

The general rule of thumb is to aim to invest 15% of your gross income into your 401(k), including your employer match. But the exact target for you will depend on your life stage, your investing goals and the aggressiveness of your portfolio. Talk to an advisor to discuss the right investment plan for you.

What's a Good Rate of Return on a 401(k)?

How you define a "good" rate of return depends on your investment goals. Average 401(k) returns typically range between 5% and 10% depending on market conditions and risk profile. You may want higher returns if you're trying to catch up after a late start. You might be comfortable with a lower return if you have a long way to go until retirement and a low tolerance for risk.

How Can I Protect My 401(k) from a Stock Market Crash?

There's no way to perfectly protect your investments from a financial downturn, but there are some solid strategies you can take to hedge against a major crash. These include keeping a diverse portfolio, not panicking about a stock market crash when dips occur in the market, and consistently funding your 401(k) over time.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. The Vanguard Group. "Vanguard Balanced Index Fund Admiral Shares (VBIAX)."

  2. The Vanguard Group. "How America Saves 2021."

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