A 401(k) allows you to save toward retirement while enjoying certain tax advantages that allow your investments to grow faster. Most 401(k) programs are set up by companies, although it is possible to create an individual 401(k). You can contribute up to about one-fifth of your pretax pay to a 401(k), which employers may or may not match. How much freedom you'll have to pick investments within your plan will depend on your employer and how the plan is set up. A good plan will offer a range of options, sometimes including picking your own stocks.
Read the Rules
Read the terms of your company's 401(k) to see what your investment options are. Internal Revenue Service regulations allow employers to offer a wide variety of investments, from certificates of deposit to money market funds to stock and bond mutual funds or individual stocks. Most 401(k) plans, however, limit employee options, so you need to see exactly what is permissible. Talk to the plan administrator if you have questions.
Review a Stock List
Review the list of stocks or publicly-traded securities available to you to find securities that match your goals, for instance, long-term growth or quick returns. A company will often let you buy its own stock for your 401(k), even if no other issues are allowed. A company also may restrict investment in certain stocks, such as those of competitors, or certain classes of stock.
Consider Mutual Funds
Most 401(k) plans allow investments in certain mutual funds, which are collections of stocks. Review the list of available funds to find those whose stock portfolios match your interest and your investment choices. See how often you are permitted to change your investments as economic conditions and personal considerations change.
Match Investment Goals
Pick stocks or mutual funds based on your age and goals. Younger people with a longer time to invest may want to choose stocks that tend to gain over the long term but may lose money in the short run. Older workers nearing retirement often prefer mutual funds that are less subject to stock market volatility or fixed income investments. If you buy individual stocks, track their performance so you can switch stocks if there are changes.