Investment options vary

Develop your own asset allocation strategy

Question: Some of my 401(k) investment options are labeled “aggressive growth” while others are labeled “conservative” or “moderate.” What exactly does this mean, and what’s best for me?

Answer: Aggressive investors are willing to take on more risk and volatility in exchange for the possibility of greater returns. But conservative investors want lower volatility and risk and are willing to accept lower returns.

In practice, this means aggressive investment options tend to have higher stock allocations while conservative ones generally have more of their assets in fixed-income or bond investments; moderate investment options often are more of a combination of the two.

For example, one of my retirement accounts offers an aggressive growth portfolio, which is 93% stocks and 7% bonds, while the moderate growth portfolio option has 63% stocks and 37% bonds. The conservative portfolio is 17% stocks, 46% bonds and 37% cash.

Generally, the further you are from retirement, the more aggressive you should be in your investing. Market performance can be unpredictable over periods of a few years, but over several decades, stocks tend to outperform other asset classes. Meanwhile, fixed-income investments tend to produce more consistent, but lower, returns. Therefore, these investments (which are generally big components of moderate or conservative funds) can be more appropriate for investors closer to retirement.