My 18-year-old son just started his first full-time job that offers a 401(k) plan. I helped him set up his investment choices. Different companies have different 401(k) plans with different investment options.
Not every plan has every type of exchange-traded fund (ETF). But I want to share the 401(k) investing strategy that I recommended to my son. I hope this can be helpful for other young people who are getting started with their careers and investing for retirement.
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Continue » Before you decide which exchange-traded funds (ETFs) to buy for your 401(k) or other workplace retirement plan, be sure to check the fees. Some of the funds in your company's retirement plan might charge surprisingly high fees -- such as expense ratios of 1% of your assets or more. High fees like those can eat into your returns and cause you to miss out on tens of thousands, or hundreds of thousands, of dollars of future investment gains during your life.
Instead of paying high fees on your 401(k) funds, look for low-cost index funds with low expense ratios of about 0.07% or less. Some 401(k) plans might offer a total stock market index fund as part of the investment choices, while other plans might require you to "build your own." We took a "build your own" approach to creating a diversified stock portfolio for my son's 401(k). I encouraged my son to buy an S&P 500 ETF, a mid-cap ETF, a small-cap ETF, and an international stock ETF.
These four different stock ETFs collectively own thousands of stocks. They give broad exposure to the entire U.S. economy and to global markets outside the U.S. market. My son is young and just getting started with his career.
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