Prom Dates & 401k’s

Making Your 401k Easier Than Your Prom Date
In today’s world, investing is a basic survival skill – if you don’t know how to work with money, then your survivability will literally be impacted. Here’s the bottom line… you probably don’t want to save 50% of your paycheck when you’re in your 50’s. Instead, we need to use the opportunity to invest in our 20’s, 30’s, and 40’s.

$10k saved at age 25 = $228,000 at age 70…

$10k saved at age 35 = $114,000 at age 70
$10k saved at age 45 = $57,000 at age 70
$10k saved at age 55 = $28,000 at age 70





Get more for your money! Save in your 20’s for 8x your money and save in your 30’s for 4x your money, as compared to playing catch up in your 50’s! *Assumed 7.2% return. Sure, you may not make 7.2%, but the moral to the story here is the earlier you start the better.

Investing doesn’t have to be sexy, but if you want to dress it up then that’s your choice. If you’re like me, then you’ll want investing to be easier than your prom date:

(1) Easy Prom Date: Target retirement date funds are generally the easiest way to approach retirement because they are set up to rebalance and appropriately update holdings suitable to your risk tolerance as you get closer to retirement age. Target retirement funds are typically low/no stress, less emotional, and more automated choices. These funds are convenient unless you (1) want to do it yourself or (2) aren’t offered access to target date funds. Estimate your target date: retirement age “62”, current age “30”, then target year is 32 years from this year (~2050).

(2) Prude Prom Date: If target date funds are not available to you, then consider using investment tools to help you determine your risk tolerance [based on your time horizon and retirement factors]. Try Vanguard’s investor assessment to learn more about potential investment solutions based on your personal attributes. It’s typically safe to avoid large holdings (20%+) of your employer’s stock …you work here, why risk it? A decent rule of thumb is 110 – ‘your age’ = % invested in stocks. Diversify your holdings between US stocks (large, medium, and small cap), international stocks, and US/international bonds… when one goes down, the others may go up and help keep your portfolio more stable.

(3) Friend Zoned: If you’re in the friend zone, then you’ll definitely be doing this all by yourself. Picking your own investments will require more time (research, planning, rebalancing, fund-picking, etc.), but if you’re here because you want to be in charge, great. There’s a few ways you might consider do-it-yourself-ing: (1) set up a target date fund with X% of your retirement and then DIY the other X% or (2) control all of the assets yourself, 100%. For even more control and investment options, consider opening an IRA.

Sexy Enough To Remember:

  • If you’re bored as hell or fearful… consider consulting a financial professional for help
  • Not all target retirement date funds are created equal
  • Not happy with your employer’s 401k plan? At least get their company match (FREE $) if it’s available… then consider alternative accounts such as Traditional or Roth IRAs
  • Asset allocation isn’t automated unless you’re in a target date fund: check your investments regularly (every 3-6 months)
  • Fund choices with “index” in their name will likely have lower expense ratios
  • You can control expense ratios, you can’t predict or control performance
  • Inflation is a fact: $100,000 sitting on the sidelines will be worth less than $50,000 in 30 years assuming roughly 2% inflation
  • Risk is a fact: higher risk often means higher reward, don’t forget the risk part…just because your investments go UP and DOWN doesn’t mean that your heartbeat has to
  • Give yourself a 1-2% investment raise every year, it may add up to $100,000+ in the long run

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