Since graduating college in 2007 I have started to realize how important the 401k is for my generation. With commodity prices booming and looking like they won’t slow down in the near future, it is imperative that us 20 somethings have enough money to retire comfortably in a new world where prices will be extremely higher then they are today for everything from gasoline to a gallon of milk. Hopefully, when retirement does come, my generation will have the comfort of using alternative types of fuel and other new technologies that will make our lives easier and less expensive.
Almost all companies these days have 401k plans for their employees and some even match contributions up to a certain amount. That’s right; they MATCH what you are saving. FREE MONEY!!! One may think this is too good to be true but it isn’t. The only catch is you cannot touch this money until you are 59.5. If you do decide to withdraw the money prior to then you will be penalized and it’s subject to an excise tax.
If you have no clue where to start at your new job in regards to investing in your 401k, call the benefits department and they should be able to steer you in the right direction. Once signed up, try putting away at least 5-10% of your bi-weekly pay check toward retirement. It may seem like a lot now but it will be worth it in the long run. Also, since we are young and can’t touch this money for almost 40 years, take the aggressive approach. Invest mainly in equities and high-yield bonds. An easy way to do this without having to change your allocation yearly would be to invest in a “target” retirement fund. These are funds that are specifically catered to what year you want to retire in. The names of the funds usually include the year in which you are targeting retirement as well. For example, a 22-year-old would want to choose the 2050 retirement plan, since that is around the year they would potentially be retiring in. These funds rebalance themselves over time and leave you with little research or work to do. Although these are now becoming more and more popular, do your research anyway! I prefer performing heavy analysis of my investment decisions and not putting it just in one place, but I also enjoy doing this, while others may find it tedious.
All in all, my best advice to you would be to save as much as you possibly can while you are young. Please see the attached picture of possible allocation choices depending on risk/return preference. Hope this little passage helps you out. Any questions feel free to find me on twitter.com/campusinvestor