Retirement investment advice for early-mid 20 year olds

The rest 4, 5 and the last paragraph are not necessary in my opinion. You should be giving a guide, not specifics.
You mentioned that above. But I'm still not sure what you meant by "I would change 4 to 5% Investment Account."
 
I think six months of expenses in money market / cash is too much. But it really depends on the job security and career.
I know someone who got laid off and is about to cash out a bunch of their 401(k) and pay a penalty because she didn't have a sufficient emergency fund. Some people are fine taking that kind of risk and others are not. People have to assess their own risk intolerance. I think a Roth IRA is a good way to handle the issue. Savings, help for retirement, and no penalty for withdrawing the principal.
 
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4. 5% Investment Account

That’s the end of the letter

6 months in a Money Market account is not sufficient in my opinion. I would recommend a year, but that would turn off most people in their 20’s, in my opinion - so 6 months is a good start.
 
I think that's a solid approach. The Roth 401K is a good opportunity where offered-comes out before the spendable pay hits the account.

IME, 6 months of expenses is prudent. I wouldn't sacrifice employer match on a 401k to get there sooner, but getting there is important. I had 4 different employers in the first 10 years out of college before finding my professional footing. A couple of the job transitions were financially challenging. Having a bigger cushion would have made it easier.
 
I know someone who got laid off and is about to cash out a bunch of their 401(k) and pay a penalty because she didn't have a sufficient emergency fund. Some people are fine taking that kind of risk and others are not. People have to assess their own risk intolerance. I think a Roth IRA is a good way to handle the issue. Savings, help for retirement, and no penalty for withdrawing the principal.
Agree that money in a Roth could be a source of funds in a squeeze. Have heard that recommendation before, can't recall the source(s).

The concern I have with that approach for younger adults is twofold:
1. What's the "emergency" threshold to trigger a withdrawal? What I thought was critical in my 20's would now get a quick analysis and decision in a favor of a low or zero cost alternative. Pet medical treatment comes to mind - I spent $$$$ in my 20's on that at the cost of other savings.
2. Once the money leaves a Roth, you can't replace those dollars and their future compounding. I think the opportunity cost is too high to depend on Roth contributions for an emergency fund.

There is no substitute for liquidity, no matter one's age. Important to learn that early.
 
I think that's a solid approach. The Roth 401K is a good opportunity where offered-comes out before the spendable pay hits the account.

IME, 6 months of expenses is prudent. I wouldn't sacrifice employer match on a 401k to get there sooner, but getting there is important.
Good point about not having access to the cash that ends up in either 401k account. And I agree about not sacrificing while building up the emergency fund.
 
1. What's the "emergency" threshold to trigger a withdrawal? What I thought was critical in my 20's would now get a quick analysis and decision in a favor of a low or zero cost alternative. Pet medical treatment comes to mind - I spent $$$$ in my 20's on that at the cost of other savings.
2. Once the money leaves a Roth, you can't replace those dollars and their future compounding. I think the opportunity cost is too high to depend on Roth contributions for an emergency fund.

For number one, you could say the same thing about an emergency fund that isn't in a Roth. And everyone is going to have their priorities and values when it comes to what is critical whether they are drawing from an emergency fund, a Roth IRA, or building up credit card debt. I spent $$$$ on pet medical care in my thirties and then again in my forties, but I rarely ate out. My friends who were spending lots of money at restaurants and bars and expensive weekend getaways (while I didn't) thought I was crazy because of the money I spent on pet medical care. I still don't regret it.

In my mind, putting money in a Roth would have made the money seem more like a true emergency fund rather that just savings more generally, and I think that's probably true for others. In fact, now that I am 59.5 and old enough to withdraw from all my retirement accounts without penalty, I am having a hard time actually making myself do it because, in my mind, that money is for "later."

For number two, if you put money in a money market emergency fund instead of in a Roth that can be used as an emergency fund, then you still end up without the dollars compounding tax free. For a lot of people, especially young people, they are making the choice between the two. When I was young and paying off student loans, I wasn't putting money in retirement accounts. I didn't think I could afford to do that. Then, I was putting relatively small amounts in. It wasn't until later that I was maxing out.

I know someone whose parents started teaching her to save in retirement accounts from the time she started working as a teenager. She did end up eventually taking out some of the money from her Roth IRAs in order to buy a home in her twenties. But, so what? In the interim, she was building up money tax-free and she bought her house before houses got too expensive for her. In fact, now in her thirties, she not only has retirement accounts but also owns a second home that she rents out. She also runs her own business as a hair stylist, which she started at a pretty young age.
 
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I don't see a mention of AA across all account types and treat everything as one retirement portfolio.

If I had to do it different when I was 25, I think I would stick to ETF (if they existed back then lol). I had too many mutual funds.

I have my DD 100% in the SP500 in her 403b. When it gets bigger then she can diversify. Most of her retirement will come from pensions if she's lucky,
 
I've told my younger nephews and nieces simply to put as much as they can afford into their Roth 401K plan, and utilize the company match since the company match by default goes into a pre-tax 401K. Just buy an S&P 500 ETF/mutual fund, and let it ride for the next 30 years.
 
DD is in her post-college job for 4 months now. Company offers simple-ira with 3% match. I said do 3% to get the match and put the rest if she can afford it into her Roth-IRA ($16500 max for 2025 I believe). Invest both in VTI. Invest regularly regardless of what's happening in the market. In about 10 years we can talk about going less aggressive and also consider different traditional/roth ratio as her income grows.
 
DD is in her post-college job for 4 months now. Company offers simple-ira with 3% match. I said do 3% to get the match and put the rest if she can afford it into her Roth-IRA ($16500 max for 2025 I believe).
I'm pretty sure the Roth IRA limit is lower than that.
 
$7000 below age 50. This is one of the reasons I'm steering my daughter towards her company's Roth 401k since they have one.
Back in ancient times when I first opened a Roth IRA, I think the limit was maybe $2000. One of my few good moves, investment wise was always maxing my Roths over the years. Megacorp never offered a Roth 401(k) though I nudged Employee Benefits every time I got a chance.
 
In about 10 years we can talk about going less aggressive and also consider different traditional/roth ratio as her income grows.
I wouldn't even begin to add bonds until 10 years before retirement (and personally I'm not doing it until 10 years after retirement because my retirement could last 40+ years). The point is to add stability, but at the cost of some growth. With even the biggest downturns lasting less than 10 years and usually less, there's no point in giving up extra growth in the decades before any of that money will be touched. Any dips are just on paper.

Edit: and definitely no point in giving up that extra growth in one's 20s and 30s when compounding is greatest
 
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Megacorp never offered a Roth 401(k) though I nudged Employee Benefits every time I got a chance.
If they did have a Roth 401k option, would you have done that instead? One problem my younger daughter may have in 5-10 years is she may hit the income limits for IRA, which won't be a problem for the 401k.
 
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