New employer offers 401(k): How should I invest my money?
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My new employer offers a 401(k). How do you recommend I invest my money? Robert 'Bob' Powell answers this question as part of Decoding Retirement's special segment, Ask Bob.
Author, consultant, and professor Charles Chaffin joined Robert 'Bob' Powell on Decoding Retirement to discuss inflation, investment portfolios, common behavioral biases, and much more.
Question:
I just started working for a company that offers a 401(k). How should I invest my money?
Answer:
First, contribute at least enough to get your full match from your employer. Most commonly, that means you’ll contribute 6 percent of your salary and your company will contribute 3 percent of your salary. So that means, right out of the gate you’re saving nearly 9 percent. That's a good start for someone just starting out.
Next, set up your contributions so that your savings rate auto escalates by say 1 percentage point each year.
Next, let's talk about investing. The easiest thing to do, if you’re a novice, is invest in what's called a target date fund. That's a fund which is based on your time horizon, your anticipated date of retirement. Target date funds pursue a long-term investment strategy, using a mix of asset classes (or asset allocation) that the fund provider adjusts to become more conservative over time.
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If you have some experience, maybe consider investing in ETFs, one that tracks the S&P 500 (^GSPC) Index and one that tracks the tracks a broad-based bond index. So, say 90 percent in the former and 10 percent in the latter.
If you've got questions about money or retirement, email us at [email protected].
Retirement planning doesn’t mean locking up your money for a rainy day and forgetting about it. Planning your future means reacting to events today. Decoding Retirement gives you the tools to navigate the years ahead, and take action now!
Yahoo Finance's Decoding Retirement is hosted by Robert Powell, and produced by Zach Faulds and Alexander Frangeskides.
Find more episodes of Decoding Retirement at https://www.perfectloveletters.com/videos/series/decoding-retirement.
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Editor's note: This post was written by Zach Faulds.