Oh, yes, definitely do invest in your 401k. Unless you're planning on retiring soon, there's no such thing as a bad time to start! To get an idea of what it will do for you, take your current income (or if you're just starting out in your career, maybe a realistic target income). Most financial planners suggest that you'll need 80 to 90% of your working income to maintain the same lifestyle in retirement that you've got now. So if you make, say, $40,000 a year, you'd need between $32K and $36K to live on. If you assume you'll live for 20 years after retirement, that means you'll need to amass savings of as much as $720,000. Unless you're substantially wealthier than I am, that means you'll need the earnings potential of the stock market to help increase your balance.

So clearly, the earlier you start your 401k, the better!

What to invest in? Your plan will likely have several mutual funds to choose from; some will be stocks, some bonds, and some cash. The stocks are the riskiest, but they tend to have the highest returns. The money market funds (cash) are the safest, but won't grow your income much.

Which ones to choose depend on (a) how long you've got until you retire, and (b) whether you'll be able to sit back and watch your riskier investments take a dive when the market goes south. (Kinda like now.) If you've got a long ways to go before you retire, I'd tend to recommend some of the more aggressive investments. But please don't just take my advice - check out the track records of the specific funds your company offers and make your decision based on that.

A lot of funds have different default portfolios depending on how much risk you want to take on. You may be able to choose one of these packages and thereby let the 401k company pick your funds for you. You can also take a risk tolerance survey - like this one: http://www.icief.org/risk/risk_quiz.html - to see what kinds of investments will match your current needs.

Remember: any money you invest has to be left alone, or you'll have some serious penalties to pay, but even if you only start out contributing a small percentage of your salary, that's better than nothing. So go for it!

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