NEW YORK (TheStreet) -- Investing in a 401(k) plan can be stressful because there's a lot to consider -- stock or bond funds, time horizon, appetite for risk. But it doesn't have to be.

The No. 1 thing to remember, as financial professionals remind us, is to diversify. That helps mitigate risk, which can erode investment returns.

Diversification in a 401(k) account has become increasingly important as those defined-contribution accounts will be the key source of retirement income for many. Nearly gone are the days that pension plans and Social Security could be relied on for income during the golden years.

When it comes to an employer's defined-contribution plan, there are a few things you should be sure to do.


Explore tools to assist you in picking the right allocation of investments. Most 401(k) providers, such as




, have online questionnaires that take no longer than 15 minutes to fill out to help determine the best investments.

If you work at a large firm, ask if there's an option to speak to a professional adviser from the provider. Often, large firms will provide professional advice to employees to help allocate and adjust 401(k) plans.


Rebalance your account. Don't worry, shuffling your account significantly isn't necessary.


found that "rebalancing once or twice a year -- and only doing so when a portfolio had wandered from its asset-allocation target by at least 5% -- produced absolute return/risk results quite close to those resulting from more frequent, complicated and time-consuming rebalancing effort."


Consider investing in balanced funds or target-date funds. Balanced funds allocate investments toward a specific weighting of stocks, bonds and other investments. When that weighting shifts because of moves in the market, the fund is automatically rebalanced to return each asset class to the weighting at the start of the investment. That way, you don't have to actively manage the investments -- the fund manager does that for you.

Target-date funds are designed to protect investors by decreasing their exposure to stocks and increasing their bond holdings as they get closer to retirement. This decreases the risk of losing savings during the years closest to retirement.

Most employers offer one of those two types of funds in their offerings to employees.


Consider other investment options to help prepare for retirement. For example, investment vehicles like annuities are good for offering lifelong income streams.

Remember, there are a lot of things to take into consideration when creating and diversifying your 401(k) account. Your age, savings history and level of desired retirement income all make a difference in determining the right objective for your investment strategy.