NextGen Investing: 401(k)s and young investors: Time is on your side

A 401(k) retirement plan is a popular way to save money for retirement and score tax breaks for doing so. But often these plans don’t provide a lot of guidance on how to manage them — and many are focused on older investors, not on those just starting out.

For younger investors, having a more aggressive portfolio primarily consisting of stocks makes a lot of sense because you have the time to ride out the market’s ups and downs.

A mistake some young investors make is being too conservative and ending up with a portfolio loaded with bonds or uninvested cash that barely budges year after year.

To gauge your plan’s aggressiveness, use the rule of 100, suggests Chris Keller, partner at Kingman Financial Group in San Antonio. With this rule, you subtract your age from 100 to find your allocation to stocks. For example, a 30-year-old would put 70 percent of a 401(k) in stocks. Naturally, this rule moves the 401(k) to become less risky as you get older.

Concerned your 401(k) is too aggressive or too conservative? A good option is to meet with your company’s 401(k) adviser each January, says Paul Miller, managing partner at Manhattan and Queens accountancy Miller & Co.

"It’s critical for an employee to hear what they have to say," Miller says. "Take notes and then go to the web and read reviews about each fund. For example, you can use Morningstar to independently rate and review your funds."

Finally, it can be useful to have a financial adviser review your 401(k), but you must find one who works in your best interest and not one who is paid to put you in certain financial products.