How can I educate myself to make intelligent investment decisions regarding my 401K?

Question

I have picked up a rudimentary knowledge of the business world from reading the business section in the newspaper regularly, and I'm taking night school business classes so I can better understand my money. In the meantime, how can I make sense of how to allocate the portion of my paycheck I withold? The terminology and my lack of investing experience make this intimidating. I allocate at 5% biweekly. I am 25 years old.

Answer 1

Well, it is generally best to allocate the money withheld into a variety of funds. Sometimes the plan will have options that are lifecycle type options, but others may not. Given your relative youth, you will probably want to invest a majority of it in stocks. One rule of thumb is to take 100 minus your age and have that much in stocks. The rest should be in safer investment categories such as bonds. You should probably place the money in stocks into these four categories, or as close as you can find. Large cap value, Large cap growth, Small cap value, and small cap growth. Small caps are generally riskier but have higher returns.

Also, go to your public library. They likely will have books on how to manage your 401K in their investment section. One good book will likely give you a really good overview. Just the fact that you are seeking answers indicates that you are on the right track.

Answer 2

First, does the employer match employee contributions, if so to what extent? If the company matches the first 10% then that should be the level of your contributions. That way you will reap the full benefit of the employer's contribution. In other words, you'll be giving yourself a raise.

As to allocation of funds, the Fund that administers your company's 401 (k) offers several funds: Aggressive, International, Value, Growth, and Money Market. The risks range from high (Aggressive) to low (Money Market) with the rewards just the opposite, in most cases.

If I were you, I would invest 25% in the Aggressive, International, Value and Growth Funds. Wait 6 months to see how they performed and make adjustments.

In addition to your 401(k), you can open an IRA (Individual Retirement Account) through a Bank or Brokerage House (Merrill Lynch, Charles Schwab, Scott Trade, etc.) Talk to the representative regarding your goals - safety, appreciation, risk level, etc. They will be glad to help and even offer suggestions on reading materials.

Answer 3

keep reading...read read read read. In the meantime, put your money where you feel comfortable sleeping at night. If that's 100% in an Index 500 and going for the gusto or diversifying it and putting some in the Bonds/MM accounts so that you don't worry about a market crash then do it.

As you become more experienced, concentrate on learning the categories...large cap/mid cap/small cap, growth vs income, hybrids, foreign versus international etc etc etc...Mutual Funds follow these categories and knowing them and how they work keeps you from weighting yourself too heavily in a sector that's about to plunge.

Most importantly...don't be intimidated. It's really not that hard. And, you're doing the most important thing already!!! Investing! Everything else is just info to help you do it smarter and cheaper.

Answer 4

First of all - Congrats on starting your 401(k) plan at 25, the longer you invest, the larger your account should grow.

Your HR department should provide you with alot of details about your investment choices. Often times you can also speak to the investment advisor (i.e. Fidelity) directly and they should be able to provide model portfolios based on your age, goals and investment needs. Don't be disappointed if your HR group declines to provide any advice, they are not allowed to, nor are they qualified to.

With your 'normal' retirement being 40 years away, the typical 'model portfolio' tends to be heavily weighted towards growth stocks, as these have provided the best long-term returns over time. Don't forget to diversify, that is, invest not only in domestic, but international as well. If your company offers it's own stock as a chioce DO NOT put 100% in it, remember what happend to Enron? Company went bust and employees lost ALL of their retirement plan that was invested in Enron stock.

Above all, keep informed about your investment choices and keep reading up on what is going on in the markets.

Answer 5

For now choose the growth stock option if you have one. Otherwise an index fund will do.

Then read Andrew Tobias' "The Only Investment Guide You Will Ever Need". It is a short book and easy to understand. It lives up to its name.

Finally, if you're really interested in investing, whether by mutual funds or individual stocks, subscribe to Investors Business Daily, either online or in print.

You then should have enough knowledge to make your own decisions.

Answer 6

you do not say how youthful you're, yet i'm assuming on your early 20s. in case your employer matches your investments, you should make investments as a lot because the point they tournament, regardless of share that's. At your age, you need to be totally invested in stocks on your retirement debts. you've 35 years or so until eventually you retire, and the marketplace will bypass up and down in the time of that aspect. through making an investment each and every payday, you're dollar-fee averaging your investments. meaning at the same time as the marketplace is going down, your invesment buys more desirable stocks. at the same time as the marketplace is going up you purchase a lot less stocks. and that is the way you opt for it...purchase the most at the same time as that's low-cost and the least at the same time as that's severe priced. once you've funds to make investments over the quantity that's matched through your employer, make investments in a Roth IRA. you may placed as a lot as $4,500 each and every year and the money might want to be taken out TAX loose once your attain age fifty 9 a million/2. do not difficulty about the united statesand downs of the marketplace at your age. make investments each and each month in countless the more desirable constancy Mutual funds and ignore it. you'd be rich once you retire in case you commence youthful. I propose you check out your library for some solid books on making an investment and skim countless the funding magazines basically to get a more desirable theory of what that's all about. solid success.

Answer 7

If you don't have a house then you should save at least 50% of your salary.