retirement
Retirement accounts for newbies

How much 
Figure out how much to contribute, and avoid the extremes of putting in too little or too much.

"The first thing they ask when you're signing up is, 'How much you would like to contribute to your 401(k) plan?' And a lot of people start out too low. They say 'I don't want this to compromise my net income, so let's go 1 percent or 2 percent,'" says Vincent Barbera, a financial planner with TGS Financial Advisors in Radnor, Pa.

On the other hand, overzealous savers can end up contributing more than they really need to and tying up money that may be better used on the present.

"If you get a younger person in their 20s and they start plunking down $15,500 a year with the employer match (the maximum allowed by law), they have a good chance of dying with about $20 million in the bank. And you don't really want to do that," says Frank Boucher, a Certified Financial Planner in Reston, Va.

Instead of feeling inadequate for being unable to contribute even near the maximum allowed or tossing in a tiny percentage of your income, at least put in just enough to get the match offered by the company.

"You don't want to leave that money on the table," says Boucher. "And then you can slowly work yourself up to about 10 percent of your income by increasing your contributions when you get a salary increase. Take a portion of that (raise) and put it in the 401(k) plan, and then use the rest to go out and spend."

Choose investments 
Many plans toss in 100 mutual funds and then say, "Here you go, pick some!" But it doesn't have to be difficult, especially for young people with a very long investment horizon.

In general, having a broad exposure to the stock market will be best for young investors. Index funds offer low-cost diversification in a simple, effective package.

"The most important thing to take into account is a core investment. Some people are paralyzed with all the choices. It does more harm than good. So you should look at a core fund along the lines of a Vanguard 500 index fund or even a target-date retirement fund," says Vincent Barbera, a Certified Financial Planner with TGS Financial Advisors in Radnor, Pa.

Frank Boucher, a financial planner in Reston, Va., also recommends that the majority of a young investor's money go into a large-cap mutual fund.

"Most plans have an S&P 500 index fund or something along those lines and that is where the bulk of your money should go," he says. "You can complement that by investing the rest into a small-cap, or small company option, if you have one, and an international fund option if you have those."

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