22 at my first job, how do I invest my 401k?

Question

Plan to invest 10% of salary. Planning for the long term. I know enough about economics not to get too scared about short term fluctuations. I basically want to maximize very long term returns with a reasonable amount of risk.

What sort of combination of small/mid/large cap + value/blend/growth should I go for.

Any comments on tech in the long term, as well as International vs US investments highly welcome.

Thanks so much! I would really hate to screw this up.

Answer 1

Ah, take the risks. When you are young, 22 is young, you can afford to put your money in the riskier options - they pay better. If you see one is not performing well, get your money shifted to something different. In the long run, your risk taking will pay better that a conservative investment. When you get older, think about being more conservative.

Answer 2

Maybe you are not so fortunate, but my 401K plan has a website providing tools to estimate what option may help you reach your goals. There is also an option to call and speak with a live person, but for basic info, the website works well. At a couple years older than you, I possess an international fund, an S&P index fund, some company stock, and a managed fund where the risk of the investment starts off high and decreases as you age.

Answer 3

I concur with Oh Boy. If you have index mutual funds within your 401k I would strongly advise splitting it up between funds that track the s&p 500 index, the total stock market index, a small cap index and maybe even about 10% in an international index. Over time you will earn a very reasonable return on your money while at the same time have your risk spread out among thousands of the best companies in the country. I wouldn't sweat the allocations too much at this point. Just split it up evenly, with the exception of the interational index fund. You are using this as a hedge against the domestic funds. And don't track performance of your 401k daily. Look at your monthly statements and rebalance it once a year so that you don't get too heavilly weighted in any one fund. Great job of starting to save early in your career (and your life) You won't regret it. Good luck

Answer 4

i've noticed that my mid-cap and international funds have had the highest returns over the 5 years i've been investing into my 401k.. but i also invest in large-cap and global funds too

i do have a little bit of money in my money market and bond funds.. but i think you should throw 100% of it into stocks NOW.. i don't care what kind of stock it is.. do it now while you're still young.. you're only 22.. you can take that risk

i'm 28 now and this is how my contributions are looking like

40% mid-cap
20% international
20% global
20% large-cap
0% bonds or money markets

it's pretty hard to make a killing in a 401k.. i was reading in fool.com that even "so-called" experts don't get a high % back in the short term.. basically because your investments are limited in a 401k plan.. but i think it's common sense that you will make more money in the long term if you contribute mostly in stocks

Answer 5

If your 401k has a Targeted Retirement fund, I highly recommend it. Usually these funds have an anticipated year of retirement in their name. For example, Vanguard is called Target and then the year, like Target 2045. Fidelity is Freedom and then the year, like Freedom 2040.

The beauty of these funds is that they diversify your investments for you among different classes of stock, international stocks, bonds, etc. They rebalance them as you get closer and closer to your retirement date to reduce the risk. Some of these funds are even starting to add commodities and currencies too.

Another good point, is usually these are comprised of mostly index funds, so the overall cost is low. If your 401k has them, just check to make sure the annual expenses are below 1%.

This truly is one way to Invest and Forget without messing up.

Answer 6

Put it all in a U.S. index fund such as any fund that tracks the S&P. When you reach 30 you might want 75% S&P/25% bond index fund and you might want 50/50 at age 40.

Please don't get caught up trying to pick the perfect actively managed fund. Use index funds and you'll beat 80% of the funds out there.

Answer 7

My family estate owns the Mississippi River bridge at Vicksburg. We are looking for a buyer. If you will send us your 401k payments for 30 years, we will transfer title to you and you can set up a toll-fee system and charge all the vehicles passing over the bridge. Depending on your greed, you ought to get your money back in the first five years and then have pure gravy for the rest of your life. Please write.

Answer 8

Total Stock Market Index.

John Bogle says to
1) Keep costs low
2) Keep it simple
3) Stay the course.