401k with paltry match or SPY ETF?
"Answers: 1. Is this a good idea? Is it really risky? What are the pros and cons? Yes, it is a bad idea. I think, with all the talk about employer matches and tax rates at retirement vs. now, that you miss the forest for the trees. It's the taxes on those retirement investments over the course of 40 years that really matter. Example: Imagine $833 per month ($10k per year) invested in XYZ fund, for 40 years (when you retire). The fund happens to make 10% per year over that time, and you're taxed at 28%. How much would you have at retirement? 2. Is it a bad idea to hold both long term savings and retirement in     the same investment vehicle, especially one pegged to the US stock     market? Yes. Keep your retirement separate, and untouchable. It's supposed to be there for when you're old and unable to work. Co-mingling it with other funds will induce you to spend it (""I really need it for that house! I can always pay more into it later!""). It also can create a false sense of security (""look at how much I've got! I got that new car covered...""). So, send 10% into whatever retirement account you've got, and forget about it. Save for other goals separately.  3. Is buying SPY a ""set it and forget it"" sort of deal, or would I need     to rebalance, selling some of SPY and reinvesting in a safer vehicle     like bonds over time? For a retirement account, yes, you would. That's the advantage of target date retirement funds like the one in your 401k. They handle that, and you don't have to worry about it. Think about it: do you know how to ""age"" your account, and what to age it into, and by how much every year? No offense, but your next question is what an ETF is! 4. I don't know ANYTHING about ETFs. Things to consider/know/read? Start here: http://www.investopedia.com/terms/e/etf.asp 5. My company plan is ""retirement goal"" focused, which, according to     Fidelity, means that the asset allocation becomes more conservative     over time and switches to an ""income fund"" after the retirement     target date (2050). Would I need to rebalance over time if holding     SPY? Answered in #3. 6. I'm pretty sure that contributing pretax to 401k is a good idea     because I won't be in the 28% tax bracket when I retire. How are the     benefits of investing in SPY outweigh paying taxes up front, or do     they not? Partially answered in #1. Note that it's that 4 decades of tax-free growth that's the big dog for winning your retirement. Company matches (if you get one) are just a bonus, and the fact that contributions are tax free is a cherry on top. 7. Please comment on anything else you think I am missing I think what you're missing is that winning at personal finance is easy, and winning at personal finance is hard" I think you understood much of what I say, in general. Unfortunately, I didn't follow Patches math.  What I gleen from your summary is a 1% match to the 10% invested, but a .8% expense. The ETF VOO has a .05% annual fee, a bit better than SPY.  A quick few calculations show that the 10% bonus does offset a long run of the .75% excess expense compared to external investing. After decades, the 401(k) appears to still be a bit ahead. Not the dramatic delta suggested in the prior answer, but enough to stay with the 401(k) in this situation. The tiny match still makes the difference. Edit - the question you linked to. The 401(k) had no match, and an awful 1.2% annual expense. This combination is deadly for the younger investor. Always an exception to offer - a 25% marginal rate earner close to retiring at 15%. The 401(k) deposit saves him 25, but can soon be withdrawn at 15, it's worth a a few years of that fee to make this happen. For the young person who is planning a quick exit from the company, same deal. "Switching to only 401k or only SPY?  Both bad ideas.  Read on. You need multiple savings vehicles.  401k, Roth IRA, emergency fund.  You can/should add others for long term savings goals and wealth building.  Though you could combine the non-tax-advantaged accounts and keep track of your minimum (representing the emergency fund). SPY is ETF version of SPDR index mutual fund tracking the S&P 500 index.  Index funds buy weighted amounts of members of their index by an algorithm to ensure that the total holdings of the fund model the index that they track.  They use market capitalization and share prices and other factors to automatically rebalance.   Individual investors do not directly affect the composition or makeup of the S&P500, at least not visibly.  Technically, very large trades might have a visible effect on the index makeup, but I suspect the size of the trade would be in the billions.   An Electronically Traded Fund is sold by the share and represents one equal share of the underlying fund, as divided equally amongst all the shareholders.  You put dollars into a fund, you buy shares of an ETF. In the case of an index ETF, it allows you to ""buy"" a fractional share of the underlying index such as the S&P 500. For SPY, 10 SPY shares represent one S&P basket.  Targeted retirement plan funds combine asset allocation into one fund.  They are a one stop shop for a diversified allocation.  Beware the fees though.  Always beware the fees. Fidelity offers a huge assortment of plans.  You should look into what is available for you after you decide how you will proceed.  More later. SPY is a ETF, think of it as a share of stock.  You can go to a bank, broker, or what have you and set up an account and buy shares of it.  Then you have x shares of SPY which is the ETF version of SPDR which is an index mutual fund. If the company is matching the first 10% of your income on a 1:1 basis, that would be the best I've heard of in the past two decades, even with the 10 year vesting requirement.  If this is them matching 1 dollar in 10 that you contribute to 401k, it may be the worst I've ever heard of, especially with 10 year vesting.  Typical is 3-5% match, 3-5 year vesting. Bottom line, that match is free money.  And the tax advantage should not be ignored, even if there is no match. Research: I applaud your interest.  The investments you make now will have the greatest impact on your retirement.   Here's a scenario:  If you can figure out how to live on 50% of your take home pay (100k * 0.90 * 0.60 * 0.5 / 12) (salary with first 10% in 401k at roughly 60% after taxes, social security, medicare, etc. halved and divided by 12 for a monthly amount), you'll have 2250 a month to live on.  Since you're 28 and single, it's far easier for you to do than someone who is 50 and married with kids.  That leaves you with 2250 a month to max out 401k and Roth and invest the rest in wealth building.  After four or five years the amount your investments are earning will begin to be noticeable.  After ten years or so, they will eclipse your contributions.  At that point you could theoretically live of the income.  This works with any percentage rate, and the higher your savings rate is, the lower your cost of living amount is, and the faster you'll hit an investment income rate that matches your cost of living amount.  At least that's the early retirement concept.   The key, as far as I can tell, is living frugally, identifying and negating wasteful spending, and getting the savings rate high without forcing yourself into cheap behavior.  Reading financial independence blog posts tells me that once they learn to live frugally, they enjoy it.   It's a lot of work, and planning, but if you want to be financially independent, you are definitely in a good position to consider it. Other notes:"
"The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account.  The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year.  In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the ""holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income"" effect to take over. Understand this now, not 30 years hence.  Last - to answer your question, 'how much'? I often recommend what may seem a cliche ""continue to live like a student."" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement.  In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly.  If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as ""retirement"" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target." "Target Date Bond ETFs: Best or Worst Fixed Income Funds? references a product at least in terms of being a bond fund that exists, Target Date Bond ETFs.  While the article is a bit old as it came out 7 months ago, ""AMT Free Municipal Bonds by iShares"" would be the product to explore and see if the ticker exists. Shares Launches 2018 Muni Bond ETF may be the product you want assuming a 5 year time frame as the final date referenced in the article is Aug. 31, 2018 approximately.  Remember to do your own research but this would seem to be what you wanted." One thing you didn't mention is whether the 401(k) offers a match. If it does, this is a slam-dunk. The $303 ($303, right?) is $3636/yr that will be doubled on deposit. It's typical for the first 5% of one's salary to capture the match, so this is right there.  In 15 years, you'll still owe $76,519. But 15 * $7272 is $109,080 in your 401(k) even without taking any growth into account. The likely value of that 401(k) is closer to $210K, using 8% over that 15 years, (At 6%, it drops to 'only' $176K, but as I stated, the value of the match is so great that I'd jump right on that.) If you don't get a match of any kind, I need to edit / completely rip my answer. It morphs into whether you feel that 15 years (Really 30) the market will exceed the 4% cost of that money. Odds are, it will. The worst 15 year period this past century 2000-2014 still had a CAGR of 4.2%. "Logic fail. The qty of shares is irrelevant. What matters is the value, which is, of course, quite high -- and, what's more, the P/E ratio, which is extremely favorable. Having worked in operations at Apple for 7 years, I can tell you that the company is very lean and efficient.  25% matching is extremely generous. 25% contribution rates are standard in corporate jobs (contribution rates are what maximum percentage of your pre-tax income you can opt to set aside into a 401K; this is different than matching). It absolutely is not bare bones to be given 25% matching. Although I no longer work at Apple, I still have my 401K, and the administration of it is good, as is the choice of funds. Back to the matching... It's free money. For every $1 you put in your 401K (pretax, btw), Apple puts in a quarter. Having worked in other corporations over my career, I can tell you that this level of matching is pretty much as good as it gets.   For a good part of the time I worked there I made around $30K (not in Retail, but in Operations, as mentioned before). I maxed out the Employee Stock Purchase Program contribution and mostly maxed out my 401K contribution. Now, 12 years later, my stock appreciated beyond my wildest expectations. I have made well over six figures on it over the years. If I never sold any, it would be worth over $500,000 by now. All that from 10% contributions on a salary that ranged from about $26K when I started out to about $46K when I left 7 years later. My 401K holdings are worth about $60K, I think, invested extremely conservatively. I have had it in money market funds since right before the 2008/2009 crash, which I anticipated.  So the investment benefits at Apple served me extremely well. My stock appreciation paid for my car, and it will soon cover the down payment on a house. I was essentially able to ""retire"" to be a stay-at-home-mom when my son was born, thanks to the safety net I have from my Apple stock.  Regarding health benefits...  I think you meant to say copays, not deductibles. When I was there, there were no copays. I forgot what the deductibles were, but for most routine visits, you wouldn't need to pay out of pocket. Annual physicals are included in the health plan, up to $250. The health plan works with various local providers to ensure that the $250 allotment will cover all expenses needed for an annual physical. This physical is separate and in addition to a women's health annual exam (pap smear/pelvic exam/etc) that is also included without copay. I'm pretty sure annual mammograms are covered. All prenatal visits are covered with zero copay. All child well checks, including immunizations, covered with zero copay. Two dental checks a year. Dental Xrays at regular intervals included. Annual vision exams and, I think $300 annually towards glasses or contacts included, IIRC.   Time off was pretty standard and accrued by the hour worked, which was nice. There was no ""you have to be with the company for X length of time"" before time off benefits began to accrue, or before any benefits kicked in, for that matter. By about Year 5, I had easily racked up enough vacation days to take 3 weeks off at a time. The longer you have been with the company, the faster your time off accrues. And each summer they'd offer a cash-out program, where you could double up on time off, where if you took off a week, you could opt to deplete your accrued vacation time by two weeks and get double pay for it. A lot of people liked this option.  The points for absenteeism thing seemed a bit silly -- and seemed to only have been implemented in one store and then only for a brief time. From what I gathered in the article, it was an experiment that failed miserably.  The other corporation I have spent a significant amount of time working at is Whole Foods Market, in their corporate office. While both Apple and Whole Foods always are selected as two of the top companies to work for by Forbes in their annual report, as far as benefits went, Apple's were far superior in most aspects. With respect to company culture, I personally found Whole Foods to be better, but that was sort of a personal preference. Both were dream jobs, and I consider myself very fortunate to have had the opportunity to work for two outstanding companies that both treated me very well.  Oh- and incidentally, Ron Johnson, who was VP of Retail at Apple from the inception of the stores until like a year ago, now is CEO of JC Penny, and, I suspect, is fully behind JCP's ad campaigns which include images of families with same-sex parents. JCP has stepped deliberately and full-on into what is, unfortunately, still a controversial topic and has taken a firm stand in support of all types of loving families. I have to wonder if part of this might have been inspired by the fact that Apple's new CEO, Tim Cook, is gay. Ron Johnson would have worked closely alongside Cook during his tenure. I met Ron once and found him to be a great guy, and I worked with the Retail operations folks from the time the stores launched. They were a great team that worked hard and were very sincere and dedicated. You could see his leadership reflecting in each member of the team." "I thought the other answers had some good aspect but also some things that might not be completely correct, so I'll take a shot. As noted by others, there are three different types of entities in your question:  The ETF SPY, the index SPX, and options contracts. First, let's deal with the options contracts.  You can buy options on the ETF SPY or marked to the index SPX.  Either way, options are about the price of the ETF / index at some future date, so the local min and max of the ""underlying"" symbol generally will not coincide with the min and max of the options.  Of course, the closer the expiration date on the option, the more closely the option price tracks its underlying directly.  Beyond the difference in how they are priced, the options market has different liquidity, and so it may not be able to track quick moves in the underlying. (Although there's a reasonably robust market for option on SPY and SPX specifically.) Second, let's ask what forces really make SPY and SPX move together as much as they do.  It's one thing to say ""SPY is tied to SPX,"" but how?  There are several answers to this, but I'll argue that the most important factor is that there's a notion of ""authorized participants"" who are players in the market who can ""create"" shares of SPY at will.  They do this by accumulating stock in the constituent companies and turning them into the market maker.  There's also the corresponding notion of ""redemption"" by which an authorized participant will turn in a share of SPY to get stock in the constituent companies. (See http://www.spdrsmobile.com/content/how-etfs-are-created-and-redeemed and http://www.etf.com/etf-education-center/7540-what-is-the-etf-creationredemption-mechanism.html) Meanwhile, SPX is just computed from the prices of the constituent companies, so it's got no market forces directly on it.  It just reflects what the prices of the companies in the index are doing. (Of course those companies are subject to market forces.) Key point: Creation / redemption is the real driver for keeping the price aligned.  If it gets too far out of line, then it creates an arbitrage opportunity for an authorized participant.  If the price of SPY gets ""too high"" compared to SPX (and therefore the constituent stocks), an authorized participant can simultaneously sell short SPY shares and buy the constituent companies' stocks.  They can then use the redemption process to close their position at no risk.  And vice versa if SPY gets ""too low."" Now that we understand why they move together, why don't they move together perfectly.  To some extent information about fees, slight differences in composition between SPY and SPX over time, etc. do play.  The bigger reasons are probably that (a) there are not a lot of authorized participants, (b) there are a relatively large number of companies represented in SPY, so there's some actual cost and risk involved in trying to quickly buy/sell the full set to capture the theoretical arbitrage that I described, and (c) redemption / creation units only come in pretty big blocks, which complicates the issues under point b. You asked about dividends, so let me comment briefly on that too.  The dividend on SPY is (more or less) passing on the dividends from the constituent companies. (I think - not completely sure - that the market maker deducts its fees from this cash, so it's not a direct pass through.)  But each company pays on its own schedule and SPY does not make a payment every time, so it's holding a corresponding amount of cash between its dividend payments.  This is factored into the price through the creation / redemption process.  I don't know how big of a factor it is though." "Following comments to your question here, you posted a separate question about why SPY, SPX, and the options contract don't move perfectly together.  That's here Why don't SPY, SPX, and the e-mini s&p 500 track perfectly with each other? I provided an answer to that question and will build on it to answer what I think you're asking on this question.  Specifically, I explained what it means that these are ""all based on the S&P.""  Each is a different entity, and different market forces keep them aligned.  I think talking about ""technicals"" on options contracts is going to be too confusing since they are really a very different beast based on forward pricing models, so, for this question, I'll focus on only SPY and SPX. As in my other answer, it's only through specific market forces (the creation / redemption mechanism that I described in my other answer), that they track at all.  There's nothing automatic about this and it has nothing to do with some issuer of SPY actually holding stock in the companies that comprise the SPX index. (That's not to say that the company does or doesn't hold, just that this doesn't drive the prices.)  What ever technical signals you're tracking, will reflect all of the market forces at play.  For SPX (the index), that means some aggregate behavior of the component companies, computed in a ""mathematically pure"" way.  For SPY (the ETF), that means (a) the behavior of SPX and (b) the behavior of the ETF as it trades on the market, and (c) the action of the authorized participants.  These are simply different things. Which one is ""right""?  That depends on what you want to do.  In theory you might be able to do some analysis of technical signals on SPY and SPX and, for example, use that to make money on the way that they fail to track each other.  If you figure out how to do that, though, don't post it here.  Send it to me directly. :)" "If it was me, I would drop out. You can achieve a better kind of plan when there is no match.  For example Fidelity has no fee accounts for IRAs and Roths with thousands of investment choices.  You can also setup automatic drafts, so it simulates what happens with your 401K.  Not an employee of Fidelity, just a happy customer. Some companies pass the 401K fees onto their employees, and all have limited investment choices. The only caveat is income.  There are limits to the deductibility of IRAs and Roth contributions if you make ""too much"" money.  For Roth's the income is quite high so most people can still make those contributions.  About 90% of households earn less than $184K, when Roths start phasing out. Now about this 401K company, it looks like the labor department has jurisdiction over these kinds of plans and I would research on how to make a complaint.  It would help if you and other employees have proof of the shenanigans.  You might also consult a labor attourney, this might make a great class." Go with a Vanguard ETF.  I had a lengthy discussion with a successful broker who runs a firm in Chicago. He boiled all of finance down to Vanguard ETF and start saving with a roth IRA. 20 years of psychology research shows that there's a .01 correlation (that's 1/100 of 1%) of stock/mutual fund performance to prediction. That's effectively zero. You can read more about it in the book Thinking Fast and Slow. Investors have ignored this research for years. The truth is you'd be just as successful if you picked your mutual funds out of a hat. But I'll recommend you go with a broker's advice. "Unfortunately, I missed most of segment and I didn't get to understand the Why? To begin with, Cramer is an entertainer and his business is pushing stocks. If you put money into mutual funds (which most 401k plans limit your investments to), then you are not purchasing his product. Also, many 401k plans have limited selections of funds, and many of those funds are not good performers. While his stock-picking track record is much better than mine, his isn't that great.  He does point out that there are a lot of fees (mostly hidden) in 401k accounts. If you read your company's 5500 filing (especialy Schedule A), you can determine just how much your plan administrators are paying themselves. If paying excessive fees is your concern, then you should be rolling over your 401k into your IRA when you quit (or the employer-match vests, which ever is later).  Finally, Cramer thinks that most of his audience will max out their IRA contributions and have only a little bit left for their 401k. I'm most definately ""not most people"" as I'm maxing out both my 401k and IRA contributions." "Use VTIVX. The ""Target Retirement 2045"" and ""Target Retirement 2045 Trust Plus"" are the same underlying fund, but the latter is offered through employers.  The only differences I see are the expense ratio and the minimum investment dollars.  But for the purposes of comparing funds, it should be pretty close. Here is the list of all of Vanguard's target retirement funds. Also, note that the ""Trust Plus"" hasn't been around as long, so you don't see the returns beyond the last few years.  That's another reason to use plain VTIVX for comparison. See also: Why doesn't a mutual fund in my 401(k) have a ticker symbol?" I don't think it has to be either-or. You can profitably invest inside the SIMPLE. (Though I wouldn't put in any more than the 1% it takes to get the match.) Let's look at some scenarios. These assume salary of $50k/year so the numbers are easy. You can fill in your own numbers to see the outcome, but the percentages will be the same. Let it sit in cash in the SIMPLE. You put in 1%, your employer matches with 1%. Your account balance is $1,000 (at the end of the year), plus a small amount of interest. Cost to you is $500 from your gross pay. 100% return on your contributions, yay! Likely 0-1% real returns going forward; you'll be lucky to keep up with inflation over the long term. Short term not so bad. Buy shares of index ETFs in the SIMPLE; let's assume the fee works out to 10%. You put in 1%, employer matches 1%. Your contributions are $500, fees are $100, your balance is $900 in ETFs. 80% instant return, and possible 6-7% real long term returns going forward. Buy funds in the SIMPLE; assume the load is 5%, management fee is 1% and you can find something that behaves like an index fund (so it is theoretically comparable to above). 1% from you, 1% from employer. Your contributions are $500, load fees are $50, your balance is $950. 90% instant return, and possible 5-6% real long term returns going forward (assuming the 6-7% real returns of equities are reduced by the 1% management fee). (You didn't list out the fees, and they're probably different for the different fund choices, so fill in your own details and do the math.) Invest outside the SIMPLE in the same ETFs or equivalent no load index funds; let's assume you can do this with no fees. You put in the same 1% of your gross (ignoring any difference that might come from paying FICA) into a self directed traditional IRA. At the end of the year the balance is $500. So deciding whether or not to take the match is a no brainer: take it. Deciding whether you should hold cash, ETFs, or (one of two types of) funds in your SIMPLE is a little trickier. What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value).  Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss.  These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction).  As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though. Vanguard has low cost ETFs that track the S&P 500. The ticker is VOO, its expense ratio is 0.05%, which is pretty low compared to others in the market. Someone correct me if I'm wrong, but you won't have to pay tax on the dividends if it's in a retirement account such as a Traditional(pay taxes when you withdraw) or Roth IRA(pay income/federal/fica etc, but no taxes on withdrawal)... I'm of the belief that, long term, fees eat away at your performance. If you chose an ETF, say VOO, with its .05% expense, and a short term bond fund or money market fund, you are going be ahead, long term.  It's pretty much accepted fact that money managers are not beating the average long term.  For you to simply do as well as I do (S&P less .05%) your guy has to beat the market year in, year out, by 1.2%. Not going to happen. Yes, in hindsight, some funds have done this. Over the decades, losing funds are closed, or merged into performing ones. But, in the end, the average fund lags the average market return quite a bit. To pay someone 25% over two decades isn't what I'd recommend to anyone.   There was recently a PBS Frontline special, The Retirement Gamble, (and this link to my article reviewing the show).    I put up an image  which shows the effect of 50 years' impact of expenses. The Vanguard S&P ETF, linked earlier has just a .05% fee. In my chart I show .1%, and then a total 1% or 2% fee. $447K return for .1%, $294K for 1%.  I'm painfully aware that 3/4 of US taxpayers aren't saving at all. For those that are savers, the value in learning about investing is huge. This isn't a onetime $150K saved, but the savings on just that $10K deposit. Meanwhile, before you learn this, a pay-for-his-time fee-only planner is worth it, for a meeting and first year follow up. "I can't find a decent duplicate, so here are some general guidelines: First of all by ""stocks"" the answers generally mean ""equities"" which could be either single stocks or mutual funds that consist of stocks. Unless you have lots of experience that can help you discern good stocks from bad, investing in mutual funds reduces the risk considerably. If you want to fine-tune the plan, you can weigh certain categories higher to change your risk/return profile (e.g. equity funds will have higher returns and risk than fixed income (bond) funds, so if you want to take a little more risk you can put more in equity funds and less in fixed income funds). Lastly, don't stress too much over the individual investments.  The most important thing is that you get as much company match as you can.  You cannot beat the 100% return that comes from a company match. The allocation is mostly insignificant compared to that.  Plus you can probably change your allocation later easily and cheaply if you don't like it. Disclaimer:  these are _general_ guidelines for 401(k) investing in general and not personal advice."