401k Calculator & Guide
Stocks and bonds play different roles in a retirement portfolio. Stocks can provide long-term growth but may fluctuate sharply. Bonds can help diversify a portfolio and provide income, but they also carry risks. Understand the differences before choosing investments in your workplace 401(k).
A 401(k) is an account, not a single investment. Your plan may offer mutual funds, target-date funds, index funds, bond funds, stable-value options, or other investments. These funds can hold different combinations of stocks and bonds.
Stocks represent ownership in companies. Stock funds may offer greater long-term growth potential, but prices can rise or fall substantially. Returns are not guaranteed, and losses are possible.
Bonds are debt securities issued by governments, companies, and other borrowers. Bond funds may provide income and diversify stock exposure, but they can lose value when interest rates, credit conditions, or other factors change.
| Feature | Stock funds | Bond funds |
|---|---|---|
| What they represent | Ownership in companies | Loans to governments, companies, or other issuers |
| Primary role in a portfolio | Potential long-term growth | Income and diversification, depending on the fund |
| Common risks | Market volatility, company risk, valuation risk | Interest-rate risk, credit risk, inflation risk, liquidity risk |
| Short-term price changes | Can be substantial | Can also be substantial, especially for longer-duration or lower-quality bonds |
| Guaranteed return? | No | No for most bond funds |
| Best evaluated by | Holdings, diversification, fees, and investment objective | Credit quality, duration, holdings, fees, and investment objective |
Stock prices can fall during recessions, market corrections, or company-specific events. A diversified fund can reduce individual-company risk but cannot eliminate market risk.
When market interest rates rise, existing bonds may lose value. Longer-duration bond funds are generally more sensitive to rate changes.
Holding many funds does not guarantee diversification if their investments overlap or are concentrated in the same sectors or companies.
Also consider inflation risk, credit quality, fund expenses, and the possibility that you will need to withdraw money during a market downturn. Your 401(k) plan's investment disclosures can help you compare the available choices.
Explore how different stock and bond percentages divide a hypothetical portfolio. This tool shows allocation amounts only; it does not forecast returns or recommend an investment mix.
Your percentages total 100%, so the entire balance is allocated in this illustration.
Money you expect to invest for many years may have more time to recover from market declines, although recovery is never guaranteed. If you will need the money soon, the effect of a sharp downturn may be harder to manage.
Consider both your financial ability and emotional willingness to tolerate losses. A portfolio that looks good on paper may be difficult to maintain if market volatility would cause you to sell at an unfavorable time.
Review each fund's expense ratio, investment objective, benchmark, holdings, and risk disclosures. Lower fees can help preserve returns, but fees are only one part of the decision.
Several funds may own many of the same companies. Review your overall allocation rather than judging each fund separately, and consider whether your mix is diversified across asset classes and markets.
A target-date fund generally holds a mix of stocks, bonds, and sometimes other investments. Its allocation typically becomes more conservative as its target year approaches, according to the fund's glide path. Funds with the same target year can have different strategies, fees, and risks, so review the specific fund offered by your plan.
Review your 401(k) investments when your circumstances change, when your plan's options change, or as part of a regular financial review. Rebalancing can restore your portfolio to chosen target percentages after markets move, but it does not guarantee a profit or prevent losses.
Neither is universally better. Stocks offer growth potential with greater market volatility, while bonds can provide income and diversification but have interest-rate and credit risks. Your appropriate mix depends on your individual circumstances.
A stock-only portfolio can experience substantial declines and may not fit every investor's time horizon or risk tolerance. Consider your complete financial situation and the risks of concentrating the portfolio in one asset class.
They may help diversify a portfolio, but protection is not guaranteed. Bond prices can fall, and stocks and bonds can decline at the same time depending on market conditions.
No. Most bond funds fluctuate in value and can lose money because of interest-rate changes, defaults, credit-spread movements, and other factors. A fund is not the same as holding an individual bond to maturity.
It is a fund that typically holds a diversified mix of investments and adjusts its allocation over time toward a target retirement year. Its strategy, fees, and risks vary by provider.
Review your plan's participant fee disclosures and each fund's prospectus or fact sheet. You can also read our 401(k) plan fees guide.
This page is for general educational purposes only and is not personalized investment, tax, legal, or financial advice. Investments can lose value, and past performance does not guarantee future results. Review your plan documents and fund disclosures, and consider consulting a qualified financial professional before making investment decisions.
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