02-13-2015,12:49 PM
A 401k with a company match is one of the best investments you can make.
If you were just investing in the stock market, you would earn a return that was acceptable to the market. When you invest in a matching 401k you get the return that the market is willing to give you + that employee matched portion. In summary you earn more than the market!
the best option is to contribute to the max that way you get the maximum of the above benefit. This advice only holds if you can do this without borrowing money at a rate that is greater than the benefit gained. an example. say the market is earning you 5% and your employer gives you 3% via match. your consolidated return is 7%. now say you owed money on a credit card and that card cost you 10%. Your net is now -3%. here your best option is to stop the 401k and pay the card.
next point - the market does not compensate you for company specific risk. it only compensates you for market risk. OK what the fuck does that mean. an example. Say you only buy home depot stock and the CEO of HD gets busted with dead hookers and blow in his car. Home depot stock will take a plunge. Now if you owned HD and Lowes equally, only half of your portfolio would take a hit. Lowes stock may actually go up. Now say housing starts fall off. both HD and lowes will take a hit, but if you added in equal portion Apple as a stock only 2/3 of you portfolio would be impacted by the decline in housing starts. Moral of the story - diversify your investments. the market will not compensate you for putting eggs in one basket. Why did i bring this up. You are being matched with company stock. the last thing your going to want to do is buy more company stock, because you will be needlessly exposing yourself to company specific risks.
OK so diversification is king now how the hell do I invest in that. Easy. I would be surprised if your 401k did not have atlas one market index fund. A market index fund is a mutual fund that holds stock in % equal to a well know index fund such as the s&p500. if you take 50% of your contribution and throw it at this one fund you will be diversified. If the market feels a little risky to you (you are risk adverse) then add a bond fund as this will bring down the risk, but also the return. Want to take some chances throw some money at maybe a technology fund or an international fund. Your employer will give you about a dozen options to chose from. they will all be sold funds. Make the market your base and then spread it around.
Hope this helps. call if you have questions. I have a lot of degrees in this shit. Never actually used it professionally
I am not a 14 year old girl, but I play one on the internet.
Who was the first person to look at a cow and say 'I don't know what these dangly things are, but I am going to yank on them and drink whatever comes out.'