General Discussion
In reply to the discussion: 401Ks are a disaster: Column [View all]dmallind
(10,437 posts)You don't need to know the difference between an stock and a stock cube, let alone work out Bollingers in your head as some are implying.
Here are the very simple rules to make 401ks work, parrotted in paraphrase in every advice column, article, workplace seminar, yadda yadda yadda. There is only one reason not to do this and that's a disaster like (necessary) bankruptcy, starvation or eviction if you don't get at that last few percent of your paycheck or your 401k itself. They boil down to a very simple principle - set it and forget it unless you think you can do better than the pros (and trust me some doubtless can).
1) Take the free money - contribute up to the match at least if one is offered. More if you can afford it
2) Don't stop contributing in bad markets - that's when you buy cheap for later gains.
3) Don't touch it - don't borrow or withdraw unless that disaster above looms
4) Little or nothing in company stock unless they give you a special discount, and even then not much. You already rely on the company for the paycheck. Eggs and baskets.
5) And this is the only one that requires anything above 3rd grade level thinking, but is freely available for the asking. Pick a reasonable balanced portfolio. Many funds offer no-brainer choices like "Retirement 2030" or "Retirement 2040" where you only have to know when you'll hit retirement and they do the balancing for you. If not the only real caveat is to pick a few different funds. Most people have somebody with basic investment savvy - enough to know the difference between bonds and stocks and risk/reward is all they need - they can ask if they want to get more detailed, but even if you throw darts at the list of funds and pick the 4-5 you hit first you'll very likely be ok.
6) Do nothing else except considering increasing contributions if you get a raise or promotion or otherwise feel able. Reducing contributions? See "disaster" bit. If you learn a bit about Finance 101 or know somebody who has, balance your risks every decade or so, moving safer as you approach retirement. If not, do nothing.
If you followed those, the 2008 collapse would have not hurt you - even helped you actually due to #2 - absent that d word again.