As a 22 year old guy, how should I plan my financial life regarding my 401(k) investments? How much risk should I be taking?

Also, is it a good idea to invest in a dynamic portfolio with smart beta ETF's managed by an active portfolio manager?

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    If someone is smart enough to consistently make significantly more than the market average over time, why would they be managing your money?
    – user
    Commented Feb 16, 2017 at 13:15
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    lack of capital.. Commented Feb 16, 2017 at 13:18
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    a line of credit is way too limited.. returns are related to the size of the investment therefore they look for funding Commented Feb 16, 2017 at 13:38
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    Most fund options in the 401(k) plans I've seen are pretty conservative. I still choose the most aggressive fund offered, and I'm about 50. I know that some plans now have a lot more options than a small set of preselected funds, but I've never taken advantage of those. I do my more speculative trading in a traditional brokerage account. Commented Feb 16, 2017 at 17:45
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    @MichaelKjörling money managers are paid based on assets under management. If you're good at something and doing it anyway, why wouldn't you charge someone to do it for them also?
    – quid
    Commented Feb 16, 2017 at 20:11

8 Answers 8


At 50 years old, and a dozen years or so from retirement, I am close to 100% in equities in my retirement accounts. Most financial planners would say this is way too risky, which sort of addresses your question. I seek high return rather than protection of principal. If I was you at 22, I would mainly look at high returns rather than protection of principal.

The short answer is, that even if your investments drop by half, you have plenty of time to recover. But onto the long answer.

You sort of have to imagine yourself close to retirement age, and what that would look like. If you are contributing at 22, I would say that it is likely that you end up with 3 million (in today's dollars). Will you have low or high monthly expenses? Will you have other sources of income such as rental properties?

Let's say you rental income that comes close to covering your monthly expenses, but is short about 12K per year. You have a couple of options:

  1. You could work one more year and save some cash outside of retirement.
  2. Maybe 3-5 years before retirement you could direct the majority of your contributions to cash equivalents.
  3. A combination of 1 and 2.

So in the end let's say you are ready to retire with about 60K in cash above your emergency fund. You have the ability to live off that cash for 5 years. You can replenish that fund from equity investments at opportune times. Its also likely you equity investments will grow a lot more than your expenses and any emergencies. There really is no need to have a significant amount out of equities. In the case cited, real estate serves as your cash investment.

Now one can fret and say "how will I know I have all of that when I am ready to retire"? The answer is simple: structure your life now so it looks that way in the future. You are off to a good start. Right now your job is to build your investments in your 401K (which you are doing) and get good at budgeting. The rest will follow. After that your next step is to buy your first home.

Good work on looking to plan for your future.

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    @David Not investing is terrible advice. You should just choose a risk profile that suits you. If you need low risk, govt bonds are a great way to go, but a savings account is not.
    – BlackThorn
    Commented Feb 16, 2017 at 16:41
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    @David Neither this question, nor this answer have anything to do with making ends meet. This is what to do with retirement money.
    – BlackThorn
    Commented Feb 16, 2017 at 17:02
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    @DavidGrinberg I wholeheartedly disagree. A dollar saved at age 22 can be worth 18x that at retirement age (assuming 7% returns per year, which is relatively conservative). So ANY LAST PENNY that can be saved is well worth it.
    – glassy
    Commented Feb 16, 2017 at 20:10
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    @glassy 7% is conservative? 7% is the yearly target for a pension fund and most struggle with that. Also, it doesn't matter if your $100 investment is worth $1800 when you are 65. If that's all you can invest then its better to keep the $100 in your pocket. Commented Feb 16, 2017 at 20:12
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    7% is the average return for the S&P, historically speaking, so I don't think that's too crazy of an estimate to use. And again I disagree, what's the point of $100 in the pocket right now if it's still only $100 in the future (nevermind inflation!), or $0 in the future if it gets spent on something else? Just my opinion here, but if you can't afford to save for your future retirement you should be cutting costs in other ways.
    – glassy
    Commented Feb 16, 2017 at 20:17

At 22 years old, you can afford to be invested 100% in the stock market. Like many others, I recommend that you consider low cost index funds if those are available in your 401(k) plan. Since your 401(k) contributions are usually made with each paycheck this gives you the added benefit of dollar cost averaging throughout your career.

There used to be a common rule that you should put 100 minus your age as the percentage invested in the stock market and the rest in bonds, but with interest rates being so low, bonds have underperformed, so many experts now recommend 110 or even 120 minus your age for stocks percentage. My recommendation is that you wait until you are 40 and then move 25% into bonds, then increase it to 40% at 55 years old. At 65 I would jump to a 50-50 stock/bonds mix and when you start taking distributions I would move to a stable-value income portfolio.

I also recommend that you roll your funds into a Vanguard IRA when you change jobs so that you take advantage of their low management fee index mutual funds (that have no fees for trading).

You can pick whatever mix feels best for you, but at your age I would suggest a 50-50 mix between the S&P 500 (large cap) and the Russell 2000 (small cap). Those with quarterly rebalancing will put you a little ahead of the market with very little effort.

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    What happens when I grow to the ripe old age of 120? Can I invest -20%? Or does that imply that the stock market invests in me dying?
    – dberm22
    Commented Feb 16, 2017 at 21:02
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    @dberm22 Sure, I guess that's a put options bet? Commented Feb 16, 2017 at 21:07
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    I've always viewed life insurance as the ultimate put option my wife sends them my dead body, they send her $1M. More or less. Commented Feb 17, 2017 at 14:49

Current evidence is that, after you subtract their commission and the additional trading costs, actively managed funds average no better than index funds, maybe not as well.

You can afford to take more risks at your age, assuming that it will be a long time before you need these funds -- but I would suggest that means putting a high percentage of your investments in small-cap and large-cap stock indexes. I'd suggest 10% in bonds, maybe more, just because maintaining that balance automatically encourages buy-low-sell-high as the market cycles.

As you get older and closer to needing a large chunk of the money (for a house, or after retirement), you would move progressively more of that to other categories such as bonds to help safeguard your earnings.

Some folks will say this an overly conservative approach. On the other hand, it requires almost zero effort and has netted me an average 10% return (or so claims Quicken) over the past two decades, and that average includes the dot-bomb and the great recession. Past results are not a guarantee of future performance, of course, but the point is that it can work quite well enough.

  • -1 for not mentioning that you really can't "subtract their commission and the additional trading costs", and so comparing performance against index funds with that artificial caveat isn't helpful. What would have been helpful would have been pointing out that this is a reason NOT to choose actively-managed funds with high expenses - they don't do as well as index funds, because of the expenses.
    – Beanluc
    Commented Feb 16, 2017 at 20:39
  • @Beanluc Are you suggesting that commissions and trading costs are something other than expenses?
    – quid
    Commented Feb 16, 2017 at 22:27
  • @quid definitely not, I'm not sure where you read that. They're expenses which you can't avoid, which is why pretending that you can is unhelpful.
    – Beanluc
    Commented Feb 16, 2017 at 23:39
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    @Beanluc I have no idea how you're reading his first sentence to mean avoiding the expenses. "after you subtract their commission and the additional trading costs" is just another way of writing "after you consider the generally higher expenses"
    – quid
    Commented Feb 16, 2017 at 23:47

At 22yo, unless you have a terminal illness, you have many years to earn and save a lot more that you will have in your 401k right now (unless you have already been extremely lucky in the market with your 401k investments).

This means that even if you lost everything in your 401k right now, it probably wouldn't hurt you that much over the long term. The net present value of all your future savings should far exceed the net present value of your 401k, if you plan to earn and save responsibly.

So take as much risk as you want with it right now. There is no real benefit to playing safe with investments at your age.

If you were asking me how much risk should you be taking with a $10m inheritance and no income or much prospects of an income, then I'd be giving you a very different answer.


Whatever you do, don't take your retirement savings to Vegas.

Second, you should also consider investment expenses. Your investments profit after the managers pay themselves. Get the lowest expense ratio mutual funds you can.

Third, most active managers do not beat the market. Index funds are your friends. They also tend to have the lower expense ratios.


As a 22 year old planning for your financial life, it is obvious to say that saving as much as you can to invest for the long run is the smartest thing to do from a financial point of view.

In general, at this point, aged 22, you can take as much risk as you'll ever will. You're investing for the very long term (+30/+40 years). The downside of risk, the level of uncertainty on returns (positive or negative), is most significant on the short term (<5years). While the upside of risk, assuming you can expect higher returns the more risk you take, are most significant on the long term.

In short: for you're financial life, it's smart to save as much as you can and invest these savings with a lot of risk.

So, what is smart to invest in?

The most important rule is to keep your investment costs as low as possible. Risk and returns are strongly related, however investment costs lower the returns, while you keep the risk.

Be aware of the investment industry marketing fancy investment products. Most of them leave you with higher costs and lower returns. Research strongly suggests that an lowcost etf portfolio is our best choice.

Personally, i disregard this new smart beta hype as a marketing effort from the financial industry. They charge more investment costs (that's a certain) and promise better returns because they are geniuses (hmmm...). No thanks.

As suggested in other comments, I would go for an low cost (you shouldn't pay more than 0.2% per year) etf portfolio with a global diversification, with at least 90% in stocks.

Actually that is what I've been doing for three years now (I'm 27 years old).


+1 on all the answers above. You're in a great position and have the right attitude. A good book on the subject is A Random Walk Down Wall Street - well worth a read. Essentially, go for low tax paying in, low tax taking out approach (in the uk that's a SIPP or ISA), a low cost well diversified unit fund (like a Vanguard LifeStrategy 100), on a low cost platform ("Annual Management Charge" in be UK). Keep paying a regular amount and let compound interest take care of things.

I'd also add that you should think about what lifestyle you would want at specific ages and work out what you need to save to achieve these - even though they are probably a long time in the future, it makes your goals "real". Read Mr Money Moustache for some ideas http://www.mrmoneymustache.com


At twenty-two, you can have anywhere between 100%-70% of your securities portfolio in equities. It is reasonable to start at 100% and reduce over time. The one thing that I would mention with that is that your target at retirement should be 70% stocks/30% bonds. You should NEVER have more than 30% bonds. Why? Because a 70/30 mix is both safer than 100% bonds and will give a higher return. Absent some market timing strategy (which as an amateur investor, you should absolutely avoid) or some complicated balancing scheme, there is never a reason to be at more than 30% bonds.

A 50/50 mix of stocks and bonds or a 100% bonds ratio not only returns less than the 70/30 mix, it is actually riskier. Why? Because sometimes bonds fall. And when they do, stocks generally gain. And vice versa. Because of this behavior, the 70/30 mix is less likely to fall than 50% or 100% bonds.

Does that mean that your stock percentage should never drop below 70%? No. If your portfolio contains things other than stocks and bonds, it is reasonable for stocks to fall below 70%. The problem is that when you drop stocks below 70%, you should drop bonds below 30% as well. So you keep the stock to bond ratio at 7:3.

If you want to get a lower risk than a 70/30 mix, then you should move into cash equivalents. Cash equivalents are actually safer than stocks and bonds either individually or in combination. But at twenty-two, you don't really need more safety.

At twenty-two, the first thing to do is to build your emergency fund. This should be able to handle six months of expenses without income. I recommend making it equal to six months of your income. The reason being that it is easy to calculate your income and difficult to be sure of expenses. Also, you can save six months of income at twenty-two.

Are you going to stay where you are for the next five years? At twenty-two, the answer is almost certainly no. But the standard is the five year time frame. If you want a bigger place or one that is closer to work, then no. If you stay somewhere at least five years, then it is likely that the advantages to owning rather than renting will outweigh the costs of switching houses. Less than five years, the reverse is true. So you should probably rent now.

You can max out your 401k and IRA now. Doing so even with a conservative strategy will produce big returns by sixty-seven. And perhaps more importantly, it helps keep your spending down. The less you do spend, the less you will feel that you need to spend.

Once you fill your emergency fund, start building savings for a house. I would consider putting them in a Real Estate Investment Trust (REIT). A REIT will tend to track real estate. Since you want to buy real estate with the results, this is its own kind of safety. It fell in value? Houses are probably cheap. Houses increasing in price rapidly? A REIT is probably growing by leaps and bounds. You do this outside your retirement accounts, as you want to be able to access it without penalty.

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    Brythan, do you have any sources to back up your recommendations? I've never heard anyone say that 50/50 is riskier than 70/30.
    – minou
    Commented Feb 16, 2017 at 21:45
  • "the 70/30 mix is less likely to fall than 50% or 100% bonds." First, this is not true, and second, that's not the definition of "risky". Risk is defined by the variance of returns. Equities are more volatile, so they are inherently "riskier"
    – D Stanley
    Commented Feb 16, 2017 at 22:22
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    @DStanley that would seem a little bit of an oversimplification. I could say, imagine people saying an investment that gave a reliable -5% return more risky than one that gave between 10 and 20%, subjectively.
    – Vality
    Commented Feb 17, 2017 at 6:46
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    @Vality In the context of portfolios, Financial risk is "the variance (or standard deviation) of a portfolio.". So no, an investment that guaranteed a 5% loss is not more "risky" than an investment that varied between 10% and 20%.
    – D Stanley
    Commented Feb 17, 2017 at 14:22
  • @DStanley That's one technical usage of "risk". Most people who aren't quants or otherwise focused on theory would use the colloquial meaning, "odds of loss or lower gain" in this context. So I'd say you're right but answering the wrong question.
    – keshlam
    Commented Jul 23, 2023 at 14:09

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