5 Ways to Whip Your 401(k) into Shape

If you're one of those investors who chooses funds for your 401(k) based on the "add a little bit of everything and stir" approach, listen up. Kelly Kratz, a Lawrence, Kan.-based field consultant for TIAA-CREF, has five pointers that could make thousands of dollars' worth of difference in your returns down the road:

• Just save something. Delaying 401(k) contributions by just one year can cost you thousands of dollars in the long run, says Kratz. "Since time is on your side, it doesn't matter how much you're saving. Just save something." For inspiration, use a simple savings calculator to see how much a few thousand dollars invested this year will be worth in 10 years.

• Don't be too bond heavy. When you have decades of compounding growth ahead of you, bonds can act as a drag on your portfolio. Take advantage of the current market volatility by contributing mostly to stock funds, advises Kratz. "It's important during the growth stage to let the market work for you," she says. "I can't tell you how many individuals I've met with at the beginning of retirement who say they wish someone had told them to be more aggressive when they were young."

• Go international. Take advantage of growth in international markets by devoting significant space in your portfolio to foreign stocks. Kratz recommends investors with long time horizons allocate 20 to 25 percent to foreign funds. You can even further diversify by stashing five percent or so in an emerging market fund, if it's available. Also, don't confuse international funds with global funds. Since global funds invest both in the United States and abroad, "it's probably best to choose one or the other," Kratz says.

• Embrace the easy solution. If you want a no-hassle 401(k), choose a target-date fund, which provides an instantly diversified, self-adjusting portfolio. "These are great if you don't know anything about investing or don't want to worry about your investments," Kratz says. You can use target-dates as a one-shot solution or add a fund or two (if you want more international exposure, for example).

• When in doubt, ask for help. If you don't know how to invest, find out if your 401(k) provider has a representative who can answer basic allocation questions. Many plans have an 800 number you can call. "If you don't have access to any free advice, one sure sign that a fund is not working out is if its category is performing well and your fund is not." Before you bail out, however, look at the fund's three- or five-year record versus its peers (you can see how a fund ranks compared with its category on Morningstar, under "total returns."