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Personally, I would be very aggressive because it seems as though you have a few decades until retirement. Keep it simple and take advantage of time and compounding interest. For at least another 20 years, I would invest in a low cost, total stock market index fund. Reassess your tolerance for risk the closer you get to retirement. Also, educate yourself on this topic. I suggest you read or listen to The Simple Path to Wealth by JL Collins. Good luck.
This book have been invaluable. It’s also what I follow; long term will be the best return. Plus it gave me a new perspective on “retirement” — that is, maybe it’s not about just not working but having enough to do what you want.
Dave Ramsay has great financial advice. Start listening to him. Generally speaking, if I were in my mid 30s I’d be invested aggressively, 100% in equities.
Dave Ramsay is a misogynistic, racist and classist douchebag. There are so many other good financial gurus in the personal wealth space. Please support someone else.
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I’m early 30s, been at the max aggressiveness levels since I started investing (401k plus HSA plus backdoor Roth plus roboinvestors) several years ago. It’s provided pretty sizable returns already. I plan to keep it as such until I feel closer to retirement. The key is to remember you’re saving for retirement, you don’t need this money immediately, and not freak out over temporary dips. The best money I’ve made is when I double down on a dip and put in more when everyone else is taking money out. The worst money I’ve lost is when I panic about a dip (looking at you, early covid) and take money out and let the market recover without me in it.
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This makes sense, thank you.
Thanks, all, this is helpful, but I’m really specifically wondering what a good aggressiveness level is for 401k, so I’d really appreciate any thoughts on that. Google isn’t telling me anything definite, and I’m wondering whether the 90/100 aggressiveness level that is apparently my default (which sounds high to me?) is normal.
While the market may be considered overvalued, he won’t be selling for 30+ years. The price only matters the day you buy (cost averaged over years of buying) and the day you sell (closer to retirement but might be readjusted in 20+years). If the price drops in a few years, it presents an opportunity to keep buying at a discount.
I recommend minimizing expense to the 401k provider. Index funds are really good for that like s&p500 funds or total market funds. John Oliver has a great show about how the fees will kill your growth even if you invest right.
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Consult a good financial planner who can look at your entire portfolio, income, expenses, and goals and provide you with advice on this. If you are trying to find a good financial advisor then consider reaching out to a fellow attorney who handles business matters or other areas where they often work closely with financial advisors. They will likely know a few that they can recommend.
First you seem to be putting special emphasis on the 401k as if there is a particular investment approach specific to 401ks and then other types for other types of accounts. If that’s the case you’ve got to drop that mentality and think of your portfolio for retirement as a whole. That means you should have an investment portfolio for retirement that spans all account types: 401k, IRA (given your likely income you should probably be doing a back door Roth), and whatever you have in taxable accounts for retirement. The account type only matters in terms of tax strategy but not your overall investment strategy.
For investments simplicity is best with only investing in low cost index funds. Throughout my 30s I have gone with the following asset allocation and it’s worked pretty well for a pretty aggressive growth portfolio: 60% US stock index fund; 30% international stock index fund; and 10% us bond index fund. I recommend doing something similar.
Oh and everybody here is right. You are in your 30s and far from retirement. Aggressive is definitely where you want to be unless you simply are uncomfortable with risk. In that case you should go with what you’re comfortable with. You may not get the returns that others get but you’ll sleep better at night and that is important too.
You want all the way aggressive at first (but still and index-not an individual stock and no leverage). When 401ks talk about aggressive vs conservative what they mean is higher average expected growth with more volatility vs lower expected growth with lower volatility. If the money is sitting in there for a long time, and you pick something like an index that can’t go to zero, you only care about growth—not how much it swings while it gets there. As it gets closer to time to withdraw, you want to reduce volatility even if it costs a little growth so you don’t end up withdrawing during an unexpected low.
You can reduce volatility a lot for a little reduction in growth by mixing in things that are uncorrelated or negatively correlated (usually bonds funds), which is what people mean when they say to diversify. The collection of sweet spots for reducing volatility by a given amount for the minimum drop in growth is called the efficient frontier. You can google how to stay on that when you’re 50+
Totally makes sense, thank you.
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ETFs are your best friend. QQQ, DIA, etc. - hard to beat these over the long term. You can start to shift to bonds and cash in your 50s and 60s.
A common investment rule of thumb is take your age and subtract it from 100. Put that % in equities and the rest in bonds. So, at 35 you should have about 65% in equities, 35% bonds. Bonds suck right now so that’s a little painful to do but it’s less risky than putting 100% in equities
I learned a great deal about this by watching YouTube, and ended up getting really into it. Specifically check out Ben Felix and PensionCraft who each have a great data driven approach that is easily understandable.
Also saving something is better than saving nothing so before you feel too overwhelmed, or put off saving until ‘tomorrow’ indefinitely, it’s worth starting with a US/developed/all world index fund (for instance) as others have suggested, and adjusting as needed as you go on.
As for aggressiveness, at this early stage there’s a good argument to say you should be 100% in equities (e.g. aforementioned index fund). There are academic papers which suggest the optimal strategy is actually to be over 100% in equities when you are young - i.e. using a certain amount of leverage appropriately. Buy obviously this is for people who know what they are doing and to be treated with caution.
Read Stocks For the Long Run by Jeremy Seagal. The wealth management firm I worked at prior to law school gave every employee a copy. The ideal investment portfolio is 100% equity. Eventually you’d have enough principal that dividend income alone would provide income so you never touch the principal which over time will continue to always go up. Basically they’ve built 15 bil AUM by diamond handing for the wealthy