So, I haven’t even made my first real post and I’m already falling behind. Business travel and my general lack of creativity has led to a delayed beginning to this adventure. Hopefully this won’t cost me my 3 readers.
Today alone, I’ve talked to a handful of people asking about their company-sponsored 401(k) retirement plans. As friends have trickled out of college and into the real world, this seems to be a hot topic. Whether it’s fear, greed, or denial, most people hesitate to jump into one of the greatest investment vehicles available to us today.
Although I’m running the risk of being accused of preaching, my best advice is to…DO SOMETHING. The best place to start is to find out what your company’s matching policy is. Most companies today will offer to give you free money just for investing part of your paycheck in your retirement account. Say a company has a 50% matching policy up to 6% of your salary. This means that if you invest 6% of your paycheck, they will throw another 3% into the pot. Essentially, you’re getting free money just for simply investing in your future. Can’t beat that. Additionally, the 6% you put into your 401(k) account is exempt from federal income taxes.
Well that’s all fine and dandy, but what do I invest in? I’m sure many people would disagree with me, but someone in their early- to mid-20’s should have a mix of approximately 5-10% bonds and 90-95% stocks. If you’re more conservative by nature, you could invest the majority of your stock allocation in large-cap index funds. If you’re more of an aggressive person, maybe a mix of small-, medium-, and large-cap stocks should suffice.
Start small. Take 2-3% of your paycheck and put it into your 401(k). I promise that you won’t even notice the money missing from your checking account. Why not add a percent? Still not feeling the pinch? Add one more percent. Next thing you know, you’re investing 6-10% of your paycheck and it’s no sweat at all. At the very least, I would try to target a contribution that will allow you to collect all the free money from your company that you can.
I will wrap up this eerily boring post by saying, DO SOMETHING. It may not seem like a big deal today, but it could pay off huge 20-30 years from now. Don’t rely on my word, I’m still a young cat. Ask someone in their 40’s or 50’s, “What is your biggest financial regret”? The number one answer is the regret of not starting their retirement planning earlier.
