Expert: Paul Henneman - 5/22/2007

Question
Paul,

I'm 24 with an IRA-Roth and soon to be involved with the 401K with the company I work for.  Two questions:  What type of option should I opt for in the 401K?  Fidelity is the company and they offer quite a few.  My second question is this.  I will have two accounts brewing in the next year, what other type of account could I invest in for the future?

Thanks

Answer
Reed,
  Thank you for your question, congratulations on truly a fantastic start to your financial future! You are way ahead of most at 24 years of age.  This will serve you incredibly well as investments take time to grow. Your net worth will be over twice what it would be if you had waited until you were 30 years old to start, for example.
  For the 401k, if your company offers any kind of matching, you should invest at least that amount. Of course the more the better. Fidelity is a very reputable company, they have some great products. But like any company, so not so good products as well.  I don't know exactly what is in your 401k plan and every plan is different, so I probably cannot offer alot of detail here. The one thing I can suggest is to diversify your 401k contributions a bit, don't put them all into one thing.  www.morningstar.com is perhaps the best known and respected website to research mutual funds. finance.yahoo.com is free, and also has some good information where you can enter the ticker symbols of the funds or stocks that are offered in your 401k plan and view past performance and other criteria. If possible, try to divide up your contributions to more risky by higher return investments, and less risky more conservative investments.  You are young, so a higher percentage should be in the higher risk, as you get older (decades away for you!) you would slowly begin moving towards more conservative investments. But you should always have something in less risky investments.
   For additional accounts: The maximum contribution for your Roth Ira is $4,000 a month, and now you will have your 401k contributions. If you can contribute more, I would next suggest opening a standard IRA account. You could invest up to another $4,000 a year into this regular IRA, and not pay tax on the profits each year. That is a big deal. That would give you an $8,000 investment each year, 4k each into the Roth and regular IRA.
   After that, you would need to set up a standard individual investment account. This account would be subject to taxes each year on the profits.  Unlike the IRA's, you have to account for your trading each year in the tax forms, this can be a real hassle if you trade alot. But, if you invest in a mutual fund such as VFINX that follows the S&P500 index, there will not be any trading during the year. Just the purchase, and additional funds going in. So the taxes will not be too bad, and it is not terribly expensive to have your taxes done for you if you are unsure. Just realize that if your individual trading account is very profitable during the year, you will pay a percentage of that profit to the government! This is not the case with IRA's, which is what makes them so attractive.

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Best Regards,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com