How do I know where to direct my money for my 401K?

Question

Im 22 and have been at my career for 1 yr, i dont know where to direct my funds? im completely lost...

Answer 1

First, congrats on being smart and beginning to invest at your age! I'm 24 and started @ 22 as well, and with only a $27 or so investment with each check, i've already got $10,000 between my own contributions and my company's.

Most companies have a sort of "default" investment option for a 401K. All you do is say that you want 2% (or whatever) of your pay to go into the 401K. A private company like "principle financial" or "fidelity" (or whatever) handles the investments. You dont have to tell them where to put it-- they choose a mixture for you.

If you want to be more "hands-on", Most of them allow you to go online or to talk to the company and ask for your investments to be placed in cerrtain mutual funds, stocks, etc. YOu want to make sure you diversify your investments. They should be able to help you with this if you're intersted in becoming more active in your retirement funding.

Also, if you've only been at your company 1 year, you're probably not fully vested yet-- which means the company is contributing funds into the account as well, but they are not all yours yet-- typically you get 20% in 2 years, 40% in 3 years, etc. If you were to quit now, you could only walk away wiht what YOU have put into the funds.

Answer 2

Most would agree that it's important to be diversified to some extent so that some is in secure government bonds, some in the stock market, some in agressive growth stocks, some in international or small cap stocks and so forth. Don't be too agressive and don't be too timid. People have different tolerance for risk, but older people can tell you there is no reason to throw caution completely to the wind. At your age, I would be pretty heavily spread out in various stock funds with just about 30% in safe money. Because even in a worst case scenario of a full blown depression, it doesn't really matter anyway because your money isn't worth anything. Now, if you were talking about a large amount of money, then that would be a different story. Also, let me suggest you double up on doing a great job by saving young, and don't let yourself get into a lot of debt. Keep it manageable and stay away from credit cards except for what you can pay off each month and emergencies ONLY. Pay for everything else out of your regular bank account.

Answer 3

If you are only 22, you have at least 43 years before you would typically withdraw themoney without paying a huge penalty; therefore, the smart thing to do is to play the volatility.
From now until you are about 30, you should put all your contributions into the most aggressive option available to you. (Often a small-cap growth, or foreign small-cap growth). This will likely bounce up and down in value over the next 10 years, but over that period will likely return, on average, far more than any of the other choices...

When you reach 30, you will want to reallocate to reduce long-term risk, since your "long-term" won't be so long anymore!

Congratulations on being smart enough at 22 to understand it is worth thinking about! I am an older person now, and very "comfortable", but if I had started thinking sensibly about investing when I was but 22, I'd be a billionaire by now!

Answer 4

Your 401k will be very important to you as time goes by, so guard it carefully. When I changed jobs I had quite a bit in my 401 and I too was lost. I went to my bank and talked with a finance advisor there. She invested my savings for me in a IRA and she keeps me informed on how my stocks and bonds are doing every three months. I had the option of picking them myself or letting her pick for me. I opted to let her do this as she does it everyday, all day, its her job. I feel very confident that she is doing the best she can with my money and it shows on my reports. You are young, now is the time to let your money work for you.

Answer 5

Depends on the risk level you want to bear. Given your age I would definately go with an aggressive approach because you have the time to ride the ups and downs of the market. WIth a greater risk you will ultimately reap a greater return in the long run.