Yea I am not hoping for doom and gloom. Thirty years sure is a long time.

Looks like I am stopping at half priced books this weekend for some reading material.

Edit: One thing is certain: Time. I have lot's of it and hopefully I can use it in my favor.

You can marry more money in 5 minutes than you can make in a lifetime...

I'm far from an expert, but I've done a little reading. My take is...

401k is great, especially if you have matching and the fact that it reduces your tax liability now. I'd almost say put in as much as you can until you can't afford to put more in, but you (we) need regular savings (cash that you can put your hands on), savings in the form of something that makes you more than the small interest that you'll get in checking/savings/money market accounts (some sort of investments), and retirement savings (money that you can't (without penalties) or won't access no matter what (401k, etc...).

The earlier you start building retirement savings the better because of the compounding. You build interest on your interest and over time, that means considerable benefit. THere are those examples out there like Matt puts 1000 a year in starting when he's 20 and has 1,000,000 when he retires. Sadly, Bob waited until he was 35, and even though he was putting in 5000 a year, he retires with only 600,000. (purely imaginery numbers) Make sure it's set in your mind that that money is gone and inaccessible.

There are the two different types of IRA, I can never remember which is which. Basically, one is like a 401k, you put in money and get to deduct that money from your income which helps on taxes. The theory behind this type and 401k being that when you are retired, you'll have very limited income and therefore be taxed at a lower tax bracket than you'd be taxed now when you're young and making the money. The other type is not tax deductable now, but when you're old and using that money, you won't pay taxes on it because you already have today (I think you'd pay taxes on any interest earned if you take that much out).

I think the market (S&P500) averages 8% over the long term. In the last several years, you'll see all sorts of weirdness because of the recession crap that's going on. You can make the numbers look good or bad depending upon what period you look at. If you choose a period from right before the market crashed, then your account could show a negative gain, or if you look at the last 2 quarters of last year, it could look absurdly good.

To assume an annual return of 10% is not realistic:

From 1950 thru 2009 the S&P 500 real return was 7%. HOWEVER, if you weren't in the S&P 500 from 1980-2000, you missed the boat. From 2000-2010 the S&P 500 was down over 3%.
For a reality check:
S&P 500: Total and Inflation-Adjusted Historical Returns


The brokers and investment advisors tend to forget to tell you things like this...statistics don't lie but.....

Good for you to get started early.

As has been said max your 401 contribution and always live within your means.
When you have a bit of disposable cash open a regular investment account (non IRA/401K). Later on you will want to be able to get to some of your money without tax penalties.

Diversify your investments. Do research on asset classes and understand non-correlated assets. You need to understand the fees charged for funds as they can eat up your yield. Also know what is in your funds as many funds invest in the same underlying securities giving you the false impressing that you are diversified.

Only two things in life are certain and neither of them are time... :)

You are definitely on the right track and Boba's advice is right on the mark. Also, don't borrow against your 401K - a very bad idea and hazardous to your wealth.

Books? Here are a few. "Winning the Loser's Game" by Charles D.Ellis
"The Future for Investors" by Jeremy J. Siegel
"The Elements of Investing" By Burton G. Malkiel & Charles Ellis
" The Intelligent Asset Allocator"by William Bernstein
"Wall Street Words" by David L. Scott
just to name a few. websites: Bob Brinker.com Ric Edelman.com also his book "The Truth about Money" all good reads. :)

Cant say that enough. I started in funds when I was 18 and am glad I did. I'm still have a long way to go but the more you invest now (in reasonable vehicles) the less you have to later. Good work, it's a long haul, put yourself in position to be successful.

Starting early and maxing out your employers match are the best things that you can do for yourself. Congrats. . Long ago when my company started its 401k I jumped in at the then max of 12 %. It hurts for a while but you get used to it. The next raise felt good and you no longer will miss the money. Now every time you get a raise add 1 % to up your contribution and you can save even more. It is the compounding interest combined with your number of years that is going to be great. My company switched 401k admins 4 times. I regetted leaving T Rowe Price but now have Fidelity who I like a lot also. After 22 years or so in mine I am even maed out on the catch up for people over fifty ( 22500$ ). With another 12 or so years to retirement thats 270000$ without earning interest. The peace of mind you will gain is worth a lot. Keep up the fantastic job you started.

Tom, this was the first thing I came across with a search...it's a great place to start imo.

The Power of Compound Interest

Investing is fun but see if you feel the same way after seeing your portfolio drop 60% in a week like I and a lot of others did in 2008.

I applaud you for your interest (no pun) in the markets though. You're ahead of 95% of your peers.

If not in his 401k...where should he out his money?

Assuming none of your investments disappeared into the ether, and you didn't sell when it hits rock bottom... How is your portfolio now? How much has it recovered if at all?

I'm not saying don't... Just don't always expect rosy results and try to keep a really strong stomach.

If he really wants to make money I'd say become a fund manager, not a fund participant... Other Peoples' Money...

The big hits can happen and this is why I mentioned diversification. Do no think this is as simple as not having all your assets in just one stock (such as your companies stock) It is also not just having some small cap, some mid cap and some large cap, but still all equities.

This is why I mentioned non-correlated asset classes. They all do not rise and fall at the same cycle. You will not maximize your gain but you will protect your invested principal.

If you start to invest for yourself remember to take some of your profits and use them to help re-balance your portfolio on a regular basis.

Diversification will not protect you against a 2008-style crash. That's what made it so dramatic and horrific - EVERYTHING went down at once. A lot. Fortunately this rarely happens and as a general rule diversification is a good tactic.

Some stuff dropped faster/further than others but I think the only thing I held in 2008 that went up in value was my guns & ammo!

YMMV

I agree, diversification cannot stop the kind of meltdown that was 2008, but if you are well diversified you can limit the damage.

Thank you everyone for your thoughts. Clearly there are people that know much more about this then I do. Pelican is such a brain resource.

I am looking into diversifying into s&p500 and russell2000. Also maybe pick up an international index.

You may find the mindset preached here as something that you feel comfortable with...

Bogleheads :: Index

sp500, russell2000 and international index is essentially a 'total market'. Its possible to get that in one fund.

I 'started investing' in the early 90's right out of college. The 90's were a good ride. Monkeys, darts and I made good stock picks in the 90's, but I eventually migrated to very simple allocation in low fee index funds with an annual re-balance.

Don't forget that whatever excitement that you feel now in a gain, could go the other way in a heartbeat.

You can't draw on a 401k until you are 59 1/2 years old. Think very long term in your case. The years will smooth out even the 2008 style dips. The fact of the market is that the 2000 to 2010 is that it is considered a lost decade. Just do not change your investment strategy and think of buying depressed funds as a buying low equalizer. Look up dollar cost averaging. Over time you are buying high and buying low of the same fund lowering your overall price per share. Do not get into switching funds and chasing profits. Rarely works and makes you nuts. Rebalance once a year.