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Motley Fool: Good Time To Start a 401(k)

Let's say you're a young employee just starting out in your first job or you're a mid-career employee who -- for some reason -- has never started a retirement savings plan.

We wondered: With the market so low, and with so many stocks so cheap, is now a good time to start a 401(k)? Or, is it better to get as much cash as possible from your paycheck and put it all in savings account?

So we asked the question of someone who should know: Tim Hanson, senior analyst at Alexandria's Motley Fool, which has been advising individual investors since 1993. Here's what he said:

"That depends on your individual situation. If you're very close to retirement and need the cash, I would not be contributing to stocks. This is a violently volatile market, and I have no idea what the next 12 months are going to look like -- and I read a lot on the topic.

If you're young, make it happen now. It's times like these when fortunes are made despite the fact that they may make you want to throw up along the way.

Either way, however, you should be contributing to your 401(k) to take advantage of the tax shelter and, most importantly, your company match. But if you're closer to retirement, you'll want to allocate those contributions into principal protecting vehicles, such as treasuries."

-- Frank Ahrens

By Frank Ahrens  |  October 10, 2008; 11:20 AM ET
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Investing 101
Don't get hog-tied by fools. A girl who knows the ropes isn't likely to get tied up.

We have no shortage of fools and plenty of hog-tying to do. It looks better on paper. Events tend to run ahead of data, so the data keeps looking worse on the computer. Things can always look better. i guess this get rid of the papers business really has turned into fools gold. Real gold is going up again. If we lash more computers together, will we all get rich? Gotta go Post. Good luck, it's a bums rush out there!

Posted by: IV | October 10, 1908 11:35 AM | Report abuse

It may be a good idea to contribute to a 401(k) as young professional. However, these contributions are made with the optimism that our long-term economic situation will once again grow at a pace seen from the Great Depression through the sixties. A managed fund of diversified investments will not achieve this same rate of growth and prosperity. Managers of such funds scope our interests to keep us satisfied but to keep fellow managers fat and wealthy. As the little man investor we are happy with steady reasonable growth say 15%, while in our lifetime if growth is closer to 30% this excess cream is redistributed to the pockets of the fund managers and in turn St. Regis caddies and spa professionals.

Posted by: First Job-ber | October 10, 1908 11:47 AM | Report abuse

Yes, start now while the market is down. Then you can build up a nice big nest egg before you lose it in the next bubble.

Posted by: spidey103 | October 10, 1908 12:22 PM | Report abuse

I opened my first 401(k) just after the October 1987 crash. And in October 2007, I looked like a financial genius.

Now, not so much.

Posted by: WashingtonDame | October 10, 1908 12:55 PM | Report abuse

Yeah, What exactly happens to 401K newbies if we don't come out of this and the DOW ends up down at zero.
Sure it's good advice to tell people to get in soon but not too soon. I'd rather miss out on a little up than get killed on the ride down.
Stumble on a good piece about what could happen here (the negative side of things...)
good luck


Posted by: Jeff | October 10, 1908 1:29 PM | Report abuse

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