Advice for daughter starting her first job - 401-k or not

[Steve]

My daughter has started her first job as a Nurse and she has been presented with the usual HR paperwork including 401-K participation. She asked me two questions:
1. Should she sign up for the 401-K?
2. What investment selections should she make?

For her, the automatic savings approach is the best, so I like the the plan for that reason alone. However, the investment selections are typical in that her only choices are various index mutual stock and bond funds managed by a financial firm. All standard stuff: domestic stock, emerging markets, small cap, mid cap, large cap, with a recommended mix based on your age. For her, skewed toward more stocks.

There are no treasury funds, only a money market fund and a "Stable" value fund.

No gold as you would expect.

I could use some advice for her:

1. Participate and take the tax advantage and employer match hoping this makes up for the poor returns of stock and bond funds.

2. Opt out and do a self directed IRA and invest it according to the iTulip approach.

3. Any other ideas you can think of

Thanks,
Steve

[photoncounter]

Re: Advice for daughter starting her first job - 401-k or not

A lot of employers offer the option of SDBA (Self Directed Brokerage Account). If offered, it opens up a lot of options. As to your question, personally, I would definitely take advantage of the employer match by contributing the absolute minimum, atleast (specially as a new investor). It is a guaranteed return. Going forward, if she thinks she can do a better job investing the money, she can usually get upto 50% of the amount in loan at prevailing interest rate (paying interest to self). My employer offers SDBA and I am doing both of the above. Also to hedge against future tax increases, I distribute my contribution between 401k and Roth 401k(not 50-50 though), which is again not offered by all employers. Having said that, the situation may vary greatly from individual to individual.

My daughter has started her first job as a Nurse and she has been presented with the usual HR paperwork including 401-K participation. She asked me two questions:
1. Should she sign up for the 401-K?
2. What investment selections should she make?

For her, the automatic savings approach is the best, so I like the the plan for that reason alone. However, the investment selections are typical in that her only choices are various index mutual stock and bond funds managed by a financial firm. All standard stuff: domestic stock, emerging markets, small cap, mid cap, large cap, with a recommended mix based on your age. For her, skewed toward more stocks.

There are no treasury funds, only a money market fund and a "Stable" value fund.

No gold as you would expect.

I could use some advice for her:

1. Participate and take the tax advantage and employer match hoping this makes up for the poor returns of stock and bond funds.

2. Opt out and do a self directed IRA and invest it according to the iTulip approach.

3. Any other ideas you can think of

Thanks,
Steve

[c1ue]

Re: Advice for daughter starting her first job - 401-k or not

For her, the automatic savings approach is the best, so I like the the plan for that reason alone.

Frankly for someone starting out, a Roth IRA is the best option.

Automatic saving can be accomplished via automatic deposit games.

[thriftyandboringinohio]

Re: Advice for daughter starting her first job - 401-k or not

I'm a the other end of my career, nearing completion.
To me, the decision depends on her employer's matching contributions.

Employers once routinely offered huge contributions -fifty cents on the dollar, even dollar-for-dollar matching contributions. If she's luck enough to be in that situation, she should sign up for the free money.

Now, employers typically offer only tiny matching contributions. If she's in that situation, there really isn't much advantage compared to setting up her own IRA that she controls. Right now I wish we controlled all our 401K money outside my wife's employer plan so we could have better choices.