Retirement Plan Investment Options

 There are six types of investment options that you could choose between to invest your retirement plan funds:

  1. Bank Accounts
  2. Bonds
  3. Insurance Annuities
  4. Common Stocks
  5. Mutual Funds
  6. Self-Directed Retirement Plans

Bank Accounts

Bank accounts are the simplest of all the retirement plan investment options. You deposit your retirement plan contributions into a statement savings account, or perhaps into a Certificate of Deposit (CD) account which pays a higher rate of interest.  Your contributions earn interest income at the fixed or variable rate of interest, as specified in the bank’s Retirement Plan Agreement.
Up through 2021, the interest that banks had paid on retirement savings accounts and CDs was relatively miniscule, on the order of 0.10% to 1.00% APR. Why? Following the Great Recession of 2008-9, the Federal Reserve adapted a monetary policy of suppressing interest rates to prime economic growth of our nation’s economy. By Spring 2022, Federal Reserve changed its monetary policy to aggressively fight the high inflation that suddenly sprang up due to the substantial Federal government spending during the COVID pandemic of 2020-21 by raising interest rates multiple times. By late 2023, the interest that banks are paying on retirement savings accounts and CDs had grown to 4.00%, even 5.00% APR in some cases – a welcome respite for many savers.
During 2024, it is anticipated that the Federal Reserve will ease back on its inflation-fighting monetary policy. Interest rates are expected to decline, including the interest that banks will pay on retirement savings accounts and CDs.
Bank accounts offer little in the way of long-term capital appreciation. Bank accounts are better suited for generating interest income once you’ve retired.


Bonds are debt instruments underwritten by the U.S. Treasury, state and municipal governments, corporations, and other large business enterprises.  In general, you purchase a bond in some round denomination – say, $100,000 – and expect to receive monthly interest payments in return – say, 4.00% APR or $333.33 per month.
Bond prices do not fluctuate very much, so they offer little in the way of long-term capital appreciation. Bonds are better suited for generating interest income once you’ve retired.

Insurance Annuities

Insurance annuities are contracts underwritten by insurance companies that provide a certain level of guaranteed income for a specified period of time or for the remainder of the annuitant's (beneficiary’s) life. In general, you purchase an annuity in some round denomination – say, $100,000 – and expect to receive monthly payments in return – say, 4.00% APR or $333.33 per month.
Annuity prices do not fluctuate very much, so they offer little in the way of long-term capital appreciation. Annuitiesare better suited for generating a steady income stream once you’ve retired.

Common Stocks

Common stocks represent shares of ownership purchased in publicly owned and sometime privately-owned corporations and other business enterprises. Some common stocks pay cash dividends. Common stocks offer a good opportunity to realize long-term capital appreciation. The drawbacks to investing in common stocks are:

  • It is difficult to put together a well-diversified portfolio based upon, say, 20 stocks, the way that one can build a well-diversified portfolio through mutual funds
  • Should one stock suddenly tank, the paper loss puts pressure on the investor to try to recover that paper loss quickly

Warren Buffet (of Berkshire Hathaway Corp.) and Peter Lynch (formerly manager of Fidelity’s Magellan Fund) offer the following sage advice.  “Choosing individual stocks to invest in is hard even for professional money managers”. One needs to have a lot of patience to invest their retirement plan funds in common stocks, as such investments are for the long-term. “Never invest in a business that you cannot understand.” Lastly, “if you can’t understand the balance sheet, you probably shouldn’t own it.”

Some individuals may be reluctant to invest their retirement savings in common stocks or mutual funds due to fluctuations in the markets over time, which may lead to the loss of some of their retirement savings.


I have personal retirement funds invested directly in individual common stocks. Some of these stocks pay strong cash dividends (3M Company, IBM, State Street Corp., etc.). Other stocks were purchased for their long-term capital appreciation potential.

Mutual Funds

Mutual funds are baskets of stocks, bonds and other financial instruments that are aggregated and professionally managed by a team of financial investment advisors. There are many types of mutual funds available today. Their investments can be broadly diversified across a wide range of financial instruments, or they can be very concentrated in just one specific type of investment. Or anywhere in between.

Mutual funds offer many advantages for retirement plan investment options. During your wealth-building (working) years, you can invest in mutual funds that maximize long-term capital appreciation. As you near retirement, you can shift your mutual fund investment strategy towards income-producing funds. And mutual funds provide a high level of diversification that is not easily attainable through investments in common stocks. In many respects, mutual funds offer the best of all worlds with respect to retirement plan investment strategies.

Tax Tip

Most Employer-Sponsored Plans, such as 401(k), 403(b) and 457 plans, offer a basket of mutual fund options that their employees can choose between for their retirement plan investments.

Two of my long-time favorite mutual fund investment options are:

Fidelity Blue Chip Growth Fund – Symbol is “FBGRX”

Vanguard 500 Index Fund Admiral shares – Symbol is “VFIAX”


I have personal retirement funds invested in both Fidelity Blue Chip Growth Fund and in Vanguard 500 Index Fund Admiral shares.


Neither Fidelity Investments nor Vanguard provides me with any compensation nor consideration for mentioning their Fidelity Blue Chip Growth Fund and Vanguard 500 Index Fund Admiral shares on my web site.  I simply admire the remarkable 10-year and lifetime return-on-investment (ROI) performance results that the investment managers of these Fidelity and Vanguard mutual funds have consistently achieved on behalf of their mutual fund investors over the years.

There are numerous ★★★★★ and ★★★★ rated mutual funds available through Fidelity, Vanguard, American Funds, State Street and many other well-managed mutual fund investment companies that would be well-suited for your retirement plan investment strategy. Please contact these companies directly to learn more about their mutual fund offerings.

Tax Tip

You don’t need to purchase many different mutual funds to diversify your retirement plan investment portfolio. Carefully select several highly rated mutual funds, perhaps as many as a dozen, then let them run.

Tax Tip

Beware of retirement plan fiduciaries (primarily brokerage houses) whose “strategy” is to invest your retirement plan assets into a basket of mutual funds, then charge an additional fee for “managing” your account. When you purchase a stock, you pay a fee to the management of that company to drive performance of their company on your behalf. When you purchase a mutual fund directly, you pay a fee to that mutual fund investment adviser to drive the investment performance of that mutual fund on your behalf. Why pay yet another fee, with no clear return for you?

Self-Directed Retirement Plans

Please visit Self-Directed Retirement Plans elsewhere on this web site.
Form many retirement plan owners, some combination of the above investment options would work best for them. In my case, I have been very happy with the investment performance of the common stocks and mutual funds in my retirement plan investment portfolio over the years. For other individuals, a different combination of investment options may work best for them to achieve their retirement plan investment goals.

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