Basic 401k Recipe – How To 401k

When I was a financial advisor, it always surprised me how often people who didn’t know the first thing about money, investing, or 401(k) plans ended up being so successful at saving for retirement. For them, when they got their first “real” job all those years ago, they signed up for the 401k — because someone told them to — put in 6% of their salary — because that’s how you get the full match — and just chose a basic stock index fund as their investment choice — because that’s all you really need to do right now.

Then, 30 years later, after having contributed 6% into a basic stock index fund every paycheck, during every recession, during every boom, during every bust, they ended up with a pile of money thanks to dollar cost averaging and compound interest — all without ever knowing anything about it.

In contrast, I also met many people who knew “everything” about money. They quizzed me on minutia like where a company becomes a mid-cap stock versus a small-cap stock, or what month the Federal Reserve raised interest rates, but ended up with very little money in their 401k plans. As it turns out, they were “too smart” to leave their money in the market after the internet bubble burst — not realizing that got out too late, and got back in too late, and didn’t save any money during the four years in between.

Set It and Forget It Basic 401k Plan

Look, if you have more than 15 years to retirement, the markets will work out for you eventually. Even if they go down, if you keep your contributions going, the markets will come back over 15 years, and you will have bought low in the meantime.

Basic 401k Recipe


  • 1 401(k) plan – you have to get this from your employer. There is no such thing as a private 401k plan. (There is a solo 401k plan, but that requires you to have business income.)
  • 401k paperwork or website login
  • List of 401k investment options


Login to your 401k account or fill out the paperwork. Set your withholding at 6%. (If you can’t do 6 percent to start, then set up 2% and increase it every year — or every time you get a raise — until it is 6%.

Choose to invest 100% of your contributions (and any employer match) in a broad market stock index fund. (A total market fund, or a SP 2000 type fund works best).

Let bake until 10 years before retirement.

Should I Use the Basic 401k Recipe?

There are a lot of things to look at, and a lot of options that might lead to better results, but you have to be willing to look into them, and figure them out. If that isn’t where you are right now, then start with the Basic 401k Plan Recipe. The good news is that you can modify the recipe later when you have the time to learn, but you won’t be missing out now, while you don’t have that time or dedication.

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