Originally posted by rams78110
Howso? What should I be investing in as a 22 year old? I really have no idea other than the whole long-term automanaged portfolio which sounds good
To simplify it somewhat, in finance you are compensated for taking risk. You can't expect to get paid for nothing. If you don't take risk, your money will not grow, despite Cat's temper tantrums.
If inflation exists, which it almost always does in the world we live in, not only will your money not grow without taking risk, but it will actually shrink.
Also keep in mind that in finance, "risk" means variability, not what it means in common English. Risk, in finance, is both the upside and the downside, not just the downside.
At 22 years old, you should make extremely risky investments, because, as I said earlier, in finance you are compensated for risk. The more risk you take, the more compensation you will receive. As you are young and this is retirement money, you have huge amounts of time to ride out negative events, so you want to earn the highest average return you can find.
Again, keep in mind that extremely risky means something different in finance than it does in common English. Giving your money to a guy who wants to flip a kilo of cocaine is not an extremely risky investment, it is an extremely stupid one. You should stick to regulated securities where you have at least some protection.
Those target date funds are too conservative for my tastes, but that is done intentionally for liability risk management reasons. In general, if you were set on taking one, I would suggest taking one designed for some one 10 years younger than you are. Unfortunately, that is not an option for you as they don't sell funds targeted to 12 year olds.
The other issue with target date funds is that they usually have relatively high fees. Fees are a killer when you are investing in mutual funds, which is generally your only option in a 401k. Over time, they all tend to perform pretty much the same on a gross basis, so your return all comes down to how many fees you have paid. Avoid fees like the plague.
So where does that leave you? I would personally go through all the options in your 401k and pick out all the ones that are 100% equities. Then go through those and find the ones with the lowest fees. Invest in those. If you are left with a few options, list them here and I will tell you which ones I would select.
Make sure you are a maxing out your company match and don't put a penny more into your 401k. There is not another investment in the world where you can double your money instantly, so take advantage, but after that perk runs out, 401ks are generally a restrictive pain in the ass. If you have extra money to save, save it in a bank account and maybe one day consider opening a regular brokerage account.
