Flex Your 401(k): Allocation

Editor's note: As a special feature for Feburary, TheStreet.com offers a four-part series on 401(k) plans designed to help you maximize your retirement savings. Today is Part 2. Part 1 was on maximizing your contributions. Here's Part 3. .

If you're already contributing as much as you can to your 401(k), the next step toward maximizing your retirement savings is to get the right asset allocation.

Having a mix of investments from various asset classes such as stocks, bonds and cash spreads the risks around, reducing the volatility of your portfolio. But the exact mix depends on how many years you have left before you retire to grow your portfolio and how much volatility you can stomach in the meantime.

More and more retirement plans are offering options, such as target-retirement funds, that make this easy by providing one-stop exposure to a mix of stocks, bonds and other assets. All you have to do is pick the offering that corresponds to the date you expect to retire. The fund becomes increasingly more conservative as the target date approaches, shifting money out of stocks and into bonds.

If you think this kind of fund is too conservative or if putting your portfolio on autopilot doesn't appeal to you, another option is to select a mix of investments that achieve the desired asset allocation. This is easier to do with index funds, which offer broad exposure to markets and charge relatively low fees, than with actively managed funds or stocks. Either way, it's up to you to rebalance periodically.

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