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The Best 401(k) Funds for Millennials and Why You Should Invest in a Mix Now

The Best 401(k) Funds for Millennials and Why You Should Invest in a Mix Now


There’s an old saying that time is money. For millennials saving for retirement, time is on their side when it comes to making money with long-term investments in the stock market. Born in the early 80s through the mid-90s, this generation can weather market volatility better than investors closer to retirement. Millennials, categorized as those aged 18-37 years of age, can even be well-served by market downturns because dips offer buying opportunities. For millennials considering stock market investing, it’s important to also keep living expenses, student debt and emergency savings in mind when trying to balance personal finances, according to writer Matt Whittaker of US News & World Report. 

I had an opportunity to share my thoughts with Whittaker on the best 401(k) funds for millennials for his piece for US News & World Report. In his article, 7 of the Best 401(k) Funds for Millennials, Whittaker details seven of the best 401(k) funds for millennials saving for retirement.

I suggested two additional retirement funds for millennials that should’ve made the list: iShares Core S&P Total U.S. Stock Market ETF (symbol ITOT) and iShares Core MSCI Total International Stock ETF (symbol IXUS). The former is an ETF that tracks the performance of the entire U.S. stock market and the latter tracks the performance of large, medium, small and emerging market stocks outside of the U.S. If you combine the two, you can have a global allocation and decide how much to allocate to foreign stocks.

Too often investors look to just the S&P 500 for their U.S. stocks and that’s not diversified enough. You wind up overweighting the largest U.S. growth companies. Sure, that has worked the last 10 years, but over time it’s better not to be concentrated in mostly large growth stocks. By buying ITOT you still get those stocks, but a smaller percentage of them. You also get the newer and smaller companies that make up the rest of the U.S. market and the value companies, which over time have outperformed their growth counterparts.

The other thing investors do is overlook foreign stocks, especially emerging market ones. When buying IXUS you get exposure to both developed and emerging market companies of all sizes. Sure, the U.S. has outperformed most of the world the last ten years, but historically, U.S. and foreign stocks have performed the same, just doing better over different time periods. Over the last century, the U.S. has outperformed in 5 decades and foreign stocks the other 5. Remember in 2010 when people were bemoaning the lost decade in stocks? It wasn’t the case if you owned international stocks, it was just a lost decade for U.S. stocks.

The expense ratios are .09% for ITOT and .03% for IXUS and they can be bought commission-free and the spreads on each average only $.01.

 The good news is that even with the economic downturn caused by the coronavirus pandemic, millennials are still the most optimistic of any age group about the investment returns they expect in the coming years, a survey has found. Millennials likely have the capacity to take more risk than older generations, given they are further away from retirement, and so may expect higher investment returns in order to “compensate for the additional risk.” Millennials also could be influenced by investors’ political outlook, inflation and interest rate expectations or even their country’s response to the coronavirus pandemic, as well as other factors.

Please contact us if you’d like to discuss your financial plan. As always, hang in there. 

My name is Mike Garry, and my company is Yardley Wealth Management, LLC. We are a fiduciary, fee-only financial planning, and wealth management firm in Newtown, Pennsylvania (that’s in Bucks County).

Our law firm is Yardley Estate Planning, LLC and is in the same place. We only do Estate Planning work and I am licensed in Pennsylvania and New Jersey.

If you’d like to talk about this or anything else, please reach out: 267-573-1019, [email protected] or @michaeljgarry

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Michael Garry Yardley Wealth Management

Author Michael Garry Yardley Wealth Management

Michael Garry is a CERTIFIED FINANCIAL PLANNER™ practitioner and a NAPFA-registered Financial Advisor. He is a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

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