Yahoo Finance Money Minute: What's a smart way to invest my 401(k)?
Full disclosure: I am not a financial planner or money manager. So if you’re looking for someone to tell you how to pick hot stocks or time the market, you’ve got the wrong girl.
What you do have is someone who has been where you are right now — you have a good job for once in your life and the fancy 401(k) to match. But you need help figuring out what the heck to invest in.
Your first step is easy — stop overthinking it. The stock market is impossible to predict and picking stocks is a fool’s game.
Just keep it simple. When you’re just starting out, a good option might be looking into your 401(k)’s target-date fund offerings.
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Think of target-date funds as putting your retirement savings on autopilot. They're a type of mutual fund that changes its mix of stocks, bonds and cash based on a specific end date. Each target-date fund is designated by a specific year in the future (2035, 2040, 2045, etc.). You pick your fund based on the year that’s closest to when you think you’ll retire. For example, a 25-year-old today who wants to retire at age 65 might want a fund marked for the year 2055.
The beauty of target-date funds is that their fees are super low, which means you’ll get to keep more of what you save. They also do most of the work for you. As you age, your fund will adjust the mix of investments it’s selected for you. You may start out with your fund mostly invested in stocks. As you get older, your fund will slowly shift your investments away from stocks and into conservative investments like bonds and fixed income.
Now, target-date funds are a bit controversial among some investment experts. But there’s nothing I’ve seen so far that has convinced me that they aren’t a totally reasonable investment — especially if you don’t have time to micromanage your retirement portfolio.
The most important thing is that you start saving for retirement in any way possible. As you get more experience and life gets more complicated (you get married, want to buy a house or have a kid) you should sit down with a fee-only financial planner and reassess whether target-date funds make sense for you. Until then, it’s way better than nothing.
For more of your money questions answered, check out Ask Yahoo Finance on Tumblr and email your questions here.
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