Retirements funds at a young age

[LuckyJB]

IM 25 and I have a small retirement with Fidelity 401K. I am actually going ot start contributing to it again. My job also matches me for every dollar they put a dollar. I am also not sure where I should be investing within my 401K.

I would like a roth ira...I am also thinkig of opening one of those. Any thoughts? advice? where?

I also am looking at these accounts to be long term. Retirments range from ( 55 to 65 year sof age). I want to be aggressive but safe.

Any advice would be nice. Thank you.

[disneysteve]

I would invest in the 401k at least enough to get the full company match if you can. That match is generally limited to a certain percentage of your income so find out what the limit is.

There's no such thing as "aggressive but safe" but at your age, I think aggressive is the way to go with a 30-40 year time horizon for these investments. You can take the simple route and choose a target date retirement fund that adjusts as you get older and closer to retirement or you could choose individual funds if you prefer.

[sweeps]

I want to be aggressive but safe.

There is no such investment.

[meaghanchan]

Hi Lucky JB,

It's a great idea to start saving for retirement as soon as possible, so you're definitely on the right track!

You say you want to be "Aggressive but safe". Unfortunately, that's not exactly possible... If there was a choice that could guarantee a huge return year after year with no risk, everyone would do it, right? The stock market, over the long term, tends to reward risk, but even after 20, 30, or 40 years, there is no guarantee of a large return, or even a positive return.

There are a lot of possibilities on the spectrum of "safe, but low return" (you might have a stable value fund or a money market available in your 401(k), probably paying 2-5% guaranteed) to "high risk, possibility of high return (emerging markets, for example).

It might be to your benefit to track down a couple books on asset allocation. "All about Asset Allocation" by Rick Ferri is one I can recommend. The common thinking is that by combining several risky assets, a portfolio can be made less risky. For example, you could invest in 10% cash, 20% bonds, 40% US stocks, and 30% foreign stocks. You'll over time probably get a better return than just investing in cash, but you'll have less risk than a portfolio in 100% stocks. It's important to discover your own risk tolerance. Any portfolio with stocks can lose money; only you can say how much you're willing to lose. In 2008, as you might know, stocks lost a tremendous amount of value (about 40%). If you had all your money in stocks, you probably would have lost about that much. If you had half your money in stocks, you probably would have lost only about 20%.

The easiest option, if you have it available to you, would be something like a Target Retirement fund. These funds combine several different assets (US stocks, bonds, foreign stocks, etc) and weight them based on your age, adjusting the mix as you get closer to retirement. You might go for something like a Target Retirement 2050 fund, or, if you look at the mix of stocks and bonds and decide it's too risky, you could instead look at one with a closer retirement date (and a more conservative allocation) like the 2030 fund.

I started investing in 2005 at the age of 23, I'm now 26. Getting started early can really give you a huge advantage. Good luck, and feel free to ask for clarification on any points you don't understand.

[Investing First Steps]

Make sure you maximize your match. Normally I think there are a lot of decisions that influence where you put your money once it's in there, but at your age I'd seriously consider weighting heavily to stock markets. Over 30-40 years I think that it's a reasonable bet. But allow me to stress this again:

Do everything in your power to maximize what your employer matches

100% immediate tax free returns are about the closest thing you will get in this world to "aggressive but safe"

[jIM_Ohio]

IM 25 and I have a small retirement with Fidelity 401K. I am actually going ot start contributing to it again. My job also matches me for every dollar they put a dollar. I am also not sure where I should be investing within my 401K.

I would like a roth ira...I am also thinkig of opening one of those. Any thoughts? advice? where?

I also am looking at these accounts to be long term. Retirments range from ( 55 to 65 year sof age). I want to be aggressive but safe.

Any advice would be nice. Thank you.

Agressive but safe is probably an oxymoron.

Agressive means going with investments which are between 60-100% equity (stocks).

Safe might mean keeping 6-24 months expenses in an emergency fund.
Safe might mean investing in bonds and cash based investments.
Safe might mean you take as many tax deductions now as possible.
Safe might mean you always carry a gun.

What is your definition of safe?

[atomicrc11]

Since your 401k is with Fidelity, the Target Retirement funds would be called Freedom Funds. I would pick a Fidelity Freedom 2045 fund and just put all your money in there. This way you get the match from the 401k and you have a fund that is diversified and will get less aggressive as you get older. This way you won't have to manage the allocation.

If you start a Roth IRA in addition to the 401k, you can open an account with Fidelity for only $200/month and put that into a Freedom Fund as well.