Q:

401(k) Investment stategies

I am a new grad and I just started working for a company. They offered me a 401(k) with a very good matching. So I decided to invest some of my income as I am single. I was taken by surprise by how I have to split my 401(k) funds on various stocks. So, does that mean I could end up with nothing if things go wrong somewhere? What are the strategies that I should do, provided I will not retire for another 35 years(long term investment). Also, when I split funds what are the risk factors I have and where should I look for to determine whether this fund is suitable for me or not. Thanks.

A:

You could end up with nothing, yes.  I imagine those that worked at Enron years ago if their 401(k) was all in company stock would have ended up with nothing to give an example here.  However, more likely is for you to end up with less than you thought as you see other choices as being better that with the benefit of hindsight you wish you had made different choices.
The strategies will vary as some people will want something similar to a "set it and forget it" kind of investment and there may be fund choices where a fund has a targeted retirement date some years out into the future.  These can be useful for people that don't want to do a lot of research and spend time deciding amongst various choices.  Other people may prefer something a bit more active.  In this case, you have to determine how much work do you want to do, do you want to review fund reviews on places like Morningstar, and do periodic reviews of your investments, etc.  What works best for you is for you to resolve for yourself.
As for risks, here are a few possible categories:

Time - How many hours a week do you want to spend on this?  How much time learning this do you want to do in the beginning?  While this does apply to everyone, you have to figure out for yourself how much of a cost do you want to take here.
Volatility - Some investments may fluctuate in value and this can cause issues for some people as it may change more than they would like.  For example, if you invest rather aggressively, there may be times where you could have a -50% return in a year and that isn't really acceptable to some people.
Inflation - Similarly to those investments that vary wildly there is also the risk that with time, prices generally rise and thus there is something to be said for the purchasing power of your investment.  If you want to consider this in more detail consider what $1,000,000 would have bought 30 years ago compared to now.
Currency risk - Some investments may be in other currencies and thus there is a risk of how different denominations may impact a return.
Fees - How much do your fund's charge in the form of annual expense ratio?  Are you aware of the charges being taken to manage your money here?

