Ask the Harvard MBAs: I’m 23 — how aggressively should I invest my retirement funds?

January 14th, 2008

onmyowntwofeet.jpgOver the past week plus, personal finance gurus Manisha Thakor and Sharon Kedar, authors of On My Own Two Feet: A Modern Girl’s Guide to Personal Finance, have kindly answered a bunch of questions on this blog, including the one that follows. You can read the previous Q&As here (part 1), here (part 2), and here (part 3). I want to thank Manisha and Sharon for generously sharing so much of their financial know-how on this blog. This concludes the question-and-answer part of the program, girls and boys, but if you want to learn more about Manisha and Sharon’s book, visit their website,

Annie asks: How aggressive should I be about investing my retirement funds in the current economy? I’m 23 with a brand new 401(k). I know I shouldn’t be afraid to choose riskier options at my age, but I’m worried this option might backfire pretty badly in the short run. I hate to sound like an alarmist, but what do you recommend as far as how to invest during uncertain times? Thanks!

The MBAs answer: Great question! The conflicting economic news these days is enough to make any sane person’s head spin. You are wise to raise this question. The key to answering it is two-fold: (1) This is your RETIREMENT money, and (2) You are VERY YOUNG.

In other words, the money you put in your 401(k) is money you should not plan on touching until you are at least 59 1/2 years old. (Yes, there are certain circumstances where the government will allow you to access that money penalty-free before then. But heck, the point of that money is to fund your retirement, so best to stay away from that cookie jar in the interim.)

As such, you very well may see your balance go up and down — in fact, up and down quite a bit at times. However, until you close in on retirement, until you hit age 50, we think it’s best to keep that investment gas peddle to the floor and stick with those more aggressive investment options. Remember, you won’t be SPENDING that money between age 23 and age 59 1/2, so it’s ok if its upward trajectory is a little wild.

The reason is that no one can predict where the market will go — but when when it does move up, history has shown us that it tends to do so very quickly and with no advance warning. For instance, if you look back over the last 10 years, studies show that 90% of the return you made in stocks came from less than 10% of the trading days. But alas, no one knows for sure which 10% of the days those big moves will come on. That’s why for years smart investors have said investment success is about “time IN the market,” not trying to “time the market.”

Our favorite keep-it-simple option if your 401(k) plan offers it is a target-date retirement fund, which is a mutual fund that will adjust to “right” level of aggressiveness based on your age. But the most important thing is that you are participating in your 401(k). At your age, that puts you solidly in the drivers seat on the path to financial nirvana. Go you!

Entry Filed under: Money honey,Q&As

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Hi, my name's Michelle Goodman and I've been freelancing since 1992. I'm author of My So-Called Freelance Life and The Anti 9-to-5 Guide. Read my full bio here.

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