What is the average rate of return on a 401k

Every k plan is different. Meanwhile, some investments perform drastically better than others. To grasp what you can expect from your k plan, you need to understand some key points. Your plan may offer a vast investment menu with plenty of funds to choose from.

But no matter how you build your k portfolio, you should make sure its asset allocation aligns with your risk tolerance. It should also reflect your time horizon. This represents how much time you have between now and your expected retirement date. Some financial planners believe those with long time horizons have time to weather market volatility. They could thus concentrate more on growth-focused, albeit volatile, investments like equities.

On the other hand, those closer to their golden years may want to protect the savings they already have. They also would want to take on less risk. Therefore, they tend to put more of their money in securities like debt and fixed-income.

This is the general idea that drives the structure of target-date funds TDFs. The average k plan includes between eight and 12 investment options, most commonly mutual funds that offer exposure to domestic and international stocks, bonds and money market funds. About two-thirds of the k plans jointly analyzed by the Investment Company Institute and the Employee Benefit Research Institute offer target-date mutual funds.

Those variables make it hard to land on an average k return, but Vanguard gives us a general snapshot based on the five years ending December Thanks to both strong stock market returns and plan contributions, the average annual return for those enrolled all five years was One-third believed they paid no fees at all.

Your plan is required to send you a quarterly fee disclosure statement. Then contribute any additional retirement savings to an IRA, where you have much more control over costs and investment choices.

Get your voyeur on with our breakdown of the average k balance by age. In either case, you may be paying more in fees than you realize. The average annual fee charged by a k plan is 1. The average equity mutual fund charges. In either instance, you could be leaving money on the table if you leave a k with a former employer or ignore an IRA. There are options to help most investors slash those fees and make more of your money work for you. If you like to manage your own investments, a low-cost broker like Vanguard or Fidelity may be an option.

Some of the fees that get packed into your K plans include:. Depending on the mutual fund you choose in your k plan you could also be paying the following fees:. Those directly impact your return, to the tune of tens if not hundreds of thousands of dollars over your career, thanks to losses in compound interest. In fact, that one percent difference can mean adding a decade to your retirement income. The best tool to find those alternatives is Personal Capital.

Personal Capital is a free to use service that helps you better manage your finances. One of the best features is the fee analyzer tool. The fee analyzer tool shows you just how much your k plan, or any other investment portfolio for that matter, is costing you.

It also compares your plan against other plans to get an idea of just how much in fees your plan is charging you. This may seem difficult to do, but is really as simple as a few clicks when you open a Personal Capital account as you can see in the screenshot below. Each money saving opportunity you find directly impacts how much your funds grow, which directly impacts how much you will have for retirement.

Get the latest personal finance posts from InvestmentZen delivered straight to your inbox. No spam, just great content - guaranteed. John Schmoll, MBA, is a former stockbroker, mutual fund administrator and veteran of the financial services industry. His interest in investing and passion for financial literacy led him to leave his career with a well-known brokerage house to grow an advertising business with his wife and start a personal finance site, Frugal Rules, in Popular Courses.

Part Of. Know the k Rules. How k s Work. Roth k s: The Alternative. Other Types of k s. How Much Should You Contribute? Making Money With Your k. Getting Money From Your k. Rolling Over Your k. Retirement Planning K. Table of Contents Expand.

How k Plans Work. It's the Asset Allocation. Balancing Risk and Returns. How Is Your k Doing? The Bottom Line. Key Takeaways How your k account performs depends entirely on its asset allocation. Different assets offer different returns; generally, the greater the growth potential, the greater the risk. You can compare your k holdings' performance to those of similar funds or a benchmark index.

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