I am 23 years old. Given the recent stock market downturn, I have recently turned my attention to saving for my retirement. I know the correct 401(k) investment allocation for my age is supposed to be heavy in stocks, light in bonds and less risky investments. However, would it be unwise to allocate more in bonds and less risky less rewarding investments, at least until the stock market finds somewhat of a bottom? I know I’m young, and can tolerate the risk long term, but it seems like a good idea to stick with stable funds, bond funds, anS&P 500 equity index fund, and other vehicles of low market risk. On the other hand, is it a good idea to invest heavily in stocks, knowing that there are 40-50 years ahead of me during which the storm can easily be weathered? If I just put my first dollar into a 401(k) today, Oct. 27 2008, generally what allocation approach would best suit me given my age (23) and the volatile market? Thank you!
First, if the company is matching you are getting free money- so in any case max out your 401k if you can afford it no matter what you decide to do with it.
Second, what are your choices? I personally think that 20% in fixed income at your age is enough. S&P500 index is one good pick and you need some international– I like about 30% of your equity portion in international , at least, which will include about 10% emerging markets. You are one of the lucky ones, IMO, lots of time to grow your wealth and your question is a common one and a very good one. Also, check out other investment sites that are dedicated to answering questions like yours. Morningstar.com has a forum, rest you pay, but it is a good site. www.moneyrec.com is a site developed for your investment questions- free to new users.
Best of Luck, keep asking and keep learning!