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Old 02-23-2006, 11:42 PM
mwgr5 mwgr5 is offline
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Join Date: Oct 2004
Location: Madison
Posts: 450
Default Re: advise for new 401k

Since you are young and "have no plans for withdrawing" money, the 401K should be composed mostly of stock funds. Historically, stock funds have provided greater return but also have greater risk. Since you are young, the risk is reduced as time smoothens market fluctuations, providing stock fund holders with the greater return for assuming the greater risk.

I am not familiar with all of these funds but there are multiple options for how you invest in this 401K.

A well-planned portfolio utilizes asset allocation. You can find out more information by following that link or searching for asset allocation. Since you are young you would want a more aggressive asset allocation featuring more stock funds and less bond funds.

An aggressive asset allocation can be accomplished by holding different funds in your 401K that specialize in different areas, such as small cap stocks. If you would like to go this route I would first invest in the SSgA S&P 500 Index. This is a large cap fund with low expenses that acts as a core holding or anchor for your portfolio. Later you could add on other funds in an appropriate asset allocation to complete the portfolio. This would maximize your returns, as a high percentage of portfolio performance is directly correlated to asset allocation.

The other, much easier option is to invest in a target retirement fund. This option is good because it involves no work or research. Also, it provides an appropriate asset allocation. As you age, the fund becomes more conservative by holding a higher percentage of bond funds and a lower percentage of stock funds. This is automatically done so it requires no work on your part. This option may also be more favorable to you because of your limited investment. Because you are investing $2,400 a year, constructing a portfolio of mutual funds in the 401K could be difficult. The Vanguard Target Retirement 2045 is the target retirement fund you would want to invest in. Vanguard is a solid company and you can find more information about this fund at vanguard.com.

Taking advantage of a match in a 401K and investing at a young age are two of the best investing moves you can make to secure your future. Keep up the good work!
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