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I am often asked by friends and family which mutual funds to choose when allocating their 401k. Most funds are extremely diversified since they invest in at least 10-25 securities per fund. There is very little incentive to diversify further since most market risk has been removed.
The key is to look at past returns and to try to find consistently high returns over a 10 year period. Hopefully a recession will be included in this study to balance both bull and bear market results. Many funds only give recent returns of 1, 3, and 5 years which is simply not good enough. Do not invest blindly. When in doubt, allocate more of your portfolio percentage towards high yield (dividend paying) or fixed income alternatives. These are safer and will provide excellent cash flow to confront any sudden drop in the market.
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