How to Manage Your 401k

In the video “How to Manage Your 401k” hosted by Ryan, the key message is that choosing mutual funds based solely on past performance is insufficient for effective 401k management. Instead, Ryan advocates for a more nuanced approach that also takes into account the standard deviation of each fund, a metric that provides insight into potential risk.

By leveraging freely accessible tools like Yahoo Finance, viewers can determine the “wobble factor” of a fund—its propensity for risk—and thereby make more informed investment choices. Ryan goes beyond mere advice, offering viewers personalized consultation to optimize their 401k allocations by balancing risk and return, adding a layer of practical utility to the video.

How to Manage Your 401k: Making Informed Investment Choices

Have you ever found yourself pondering over the best way to navigate the complex world of 401k investments? Do you wonder how to select the right mutual funds and investment options to optimize your retirement savings? Managing your 401k effectively is crucial for securing your financial future, and in this article, we’ll guide you through the process.

If you’ve ever been baffled by the array of investment choices within your 401k plan, you’re not alone. Many individuals face the challenge of deciding where to invest their hard-earned money for retirement. Often, they rely on historical returns as their primary decision-making tool, which may not be the most prudent approach.

The Common Approach

In most cases, 401k participants receive a list of investment options and are left to their own devices to make selections. This approach can be compared to throwing darts at a dartboard, as it lacks a holistic assessment of the risk associated with each investment. Typically, individuals skim through the list, noting one-year, three-year, five-year, and ten-year average returns and make decisions based on those numbers.

The Problem with Relying on Returns Alone

While historical returns provide valuable information, they only tell part of the story. The critical missing piece is the level of risk associated with each investment. To illustrate this point, let’s consider three hypothetical investment choices, A, B, and C, all with the same 10% return:

  • Investment A has a downside potential of -20%.
  • Investment B has a downside potential of -15%.
  • Investment C has a downside potential of -5%.

Now, which of these three options is the best choice for you? Without considering risk, it’s nearly impossible to make an informed decision. Investment C is the clear winner, offering the same 10% return as the others but with the least downside risk.

Understanding Standard Deviation

To delve deeper into your 401k investment options, you need to understand a crucial risk measurement factor called standard deviation. Think of standard deviation as a “wobble factor.” It represents how much an investment’s returns tend to deviate from its average return.

Imagine a bell curve, with the average return in the center. Standard deviation measures how far returns can deviate from this average. The greater the standard deviation, the more wobbly or volatile the investment.

For instance, if a portfolio has an average annual return of 7% and a standard deviation of 13%, one standard deviation below the average would mean a potential return of -6%, while one standard deviation above would mean a potential return of +20%. This demonstrates how a higher standard deviation implies more significant volatility and uncertainty in returns.

Finding Standard Deviation for Your 401k Investments

Now that you understand the importance of standard deviation, you might be wondering how to obtain this critical information for your 401k investments. It’s surprisingly easy:

  1. Identify the Fund Ticker Symbol: Each fund in your 401k has a unique ticker symbol. You can find this symbol in your plan’s investment options.
  2. Visit Yahoo Finance: Go to Yahoo Finance, a user-friendly platform where you can access financial data for various investments.
  3. Enter the Ticker Symbol: Input the fund’s ticker symbol in the search bar to retrieve information about that specific fund.
  4. Analyze Risk Metrics: Once you’ve accessed the fund’s profile, navigate to the risk metrics section. Here, you’ll find the standard deviation, which quantifies the fund’s historical volatility.

Applying Standard Deviation to Your 401k Investments

Armed with the knowledge of standard deviation, you can make more informed decisions when allocating your 401k investments. Instead of solely relying on past returns, consider the following steps to minimize risk and maximize returns:

  1. Diversify Your Portfolio: Opt for a mix of funds with varying standard deviations to create a well-balanced portfolio. This strategy helps spread risk and potentially enhances returns.
  2. Consider Your Risk Tolerance: Assess your risk tolerance honestly. If you’re uncomfortable with the idea of significant swings in your portfolio’s value, favor funds with lower standard deviations.
  3. Regularly Review Your Portfolio: Market conditions change over time, and so should your portfolio. Periodically review and adjust your 401k investments to ensure they align with your risk tolerance and retirement goals.
  4. Seek Professional Advice: If navigating your 401k investments feels overwhelming, consider consulting a financial advisor or utilizing online tools and services that can help you make well-informed choices.


Managing your 401k effectively involves more than just chasing past returns. To secure your financial future, you must consider both historical performance and the associated risks. By understanding standard deviation and using it to assess your investment choices, you can create a diversified portfolio that aligns with your risk tolerance and long-term goals. Remember that investing wisely in your 401k is a critical step toward achieving a comfortable retirement. So, take the time to make informed decisions and secure the future you deserve.

Also read: How To Create Income Streams In Retirement


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