What to suggest to son in first 401K?

[Bimmerbill]

I thought I remember reading that the amount contributed matters more than the asset allocation. So, MAX it out if he can. Especially early. Wish I did.

[bubba]

Thanks so much for all the advice. I'll be talking with him over the weekend. For some reason, I hadn't even thought about the Roth. I have always been about minimizing current taxes for myself, but if I could go back to 23 and start over, I surely would enjoy watching a Roth growth.

[Alan]

Quote:

Originally Posted by bubba Thanks so much for all the advice. I'll be talking with him over the weekend. For some reason, I hadn't even thought about the Roth. I have always been about minimizing current taxes for myself, but if I could go back to 23 and start over, I surely would enjoy watching a Roth growth.

My son is still a low wage earner so tax advantages with a Roth are at a premium now since his tax rate is so low - the 401(k) has no good fund choices and so his tax savings are very low.

[jblack]

Agree with the Roth and keep-it-simple approaches mentioned. The biggest thing (IMO) at this point is to formalize a behavior and foundation of savings.

About 10 years ago I was in a similar boat and did about half of this, which at least got me started early. A few years later my career & income started to accelerate with the focus I had put on it, plus I got married and we were DINKs.....and although I had made 1-2 risky investments that went south along the way, I/we never compromised the foundation of saving via 401ks / IRAs, an emergency fund, and eventually a taxable account aimed at ER.

The lessons both on savings & risk have been remarkable. I don't feel like I missed out on swinging for the fences working for a startup or starting too late to save.

[walkinwood]

I'd suggest 80% equities / 20% short-term treasury bonds in the lowest expense fund available.

A stronger suggestion would be to ignore his 401K balance for the foreseeable future.

[Alan]

Quote:

Originally Posted by walkinwood A stronger suggestion would be to ignore his 401K balance for the foreseeable future.

That is one bit of advice our son has definitely taken to heart - he hasn't a clue what his balance is in either his 401(k) or Roth, so I've stopped asking

(I know he contributes as I help him do his tax return each year)

[Milton]

Quote:

Originally Posted by bubba He's a bright kid, but at this point, he doesn't seem to be interested in learning about investing. I expect that will come later, but right now he's just concerned with getting fully engaged with the new job.

That is neither surprising nor inappropriate.

Quote:

Originally Posted by bubba What would you suggest for a 23 yr old who is very risk adverse for his 401K? Would it be a terrible suggestion to let him accumulate a balance in a Stable Value type fund, and then recommend he start investing into something more like a balanced fund? I am afraid if he goes into equities first thing, and the losses start to stack up, it will spook him away from the market forevermore.

I think your fears are well-founded.

We all have to make our own journey in investing, and make progress as we go. To some extent various stages can be skipped if we educate ourselves (through books or the advice of others), but he isn't terribly interested in that right now.

I'd suggest some sort of plain-Jane fixed income product, which will appeal to his risk adversion and where the advantages of compounding will be readily apparent. As jblack notes, at this time the most important thing is to cultivate the habit of regular contribution towards retirement savings. Identifying the optimal risk/return balance, and achieving diversification, can come later.

Quote:

Originally Posted by bubba He has asked for our opinions or I'd stay out of it!

Good point!