Mutual funds dominate the 401(k) landscape, but an investor can opt for exchange traded funds in their 401(k)s if the employer includes a brokerage window, or self-directed 401(k), option.

The brokerage window basically acts like a brokerage account embedded within the retirement plan, writes Adam Zoll for Morningstar. [Build a Diversified 401(k) Portfolio with Six ETFs]

Around 17% of 401(k) plans offered a brokerage window option as of 2012. Potential investors, though, should be aware that plans may vary, with some options only allowing for mutual funds while others include stocks and ETFs. [How Low-Cost ETFs Can Help Boost Your 401(k) Returns]

Before diving in head first, there are some considerations. Investors should look into a brokerage window if it makes sense. Many 401(k)s offer a diverse range of asset classes, but some investors may want more options, such as dedicated emerging market, high-yield, real estate or small-cap exposure to name a few. With ETFs, investors can track a wider range of options.

A 401(k) investors should not utilize the brokerage window as a means for trading or timing the market. The option is not an invitation to begin dabbling in gut instincts. A well-designed 401(k) provides the right mix of equity, fixed-income and alternative assets that suit an investor’s time horizon.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.