Teaching My Son to Invest Wisely: A Guide for His First Job’s 401(k)

Key Points

An 18-year-old has begun contributing to a 401(k) plan in his new job, following advice to invest heavily in low-cost index funds. The recommended investment strategy includes using four exchange-traded funds (ETFs): State Street SPDR Portfolio S&P 500 ETF, iShares Core S&P Mid-Cap ETF, Vanguard Russell 2000 ETF, and iShares Core MSCI Total International Stock ETF, collectively holding 7,415 stocks with expense ratios ranging from 0.02% to 0.07%.

As a long-term investor, the recommendation is to allocate 100% of contributions to stocks, avoiding bonds for now, to maximize growth potential over a 40-45 year investment horizon. Young investors are encouraged to diversify across various market caps and sectors to mitigate risks associated with market volatility.

The selected ETFs include:

• State Street SPDR Portfolio S&P 500 (503 stocks, 10-year average return: 15.1%)
• iShares Core S&P Mid-Cap (406 stocks, 10-year average return: 10.9%)
• Vanguard Russell 2000 (2,011 stocks, 10-year average return: 10.7%)
• iShares Core MSCI Total International (4,495 stocks, 10-year average return: 9.4%)