Where to Start Investing (Part 2)

Over the past few weeks, we’ve been building step by step toward smarter investing. In Week 25, we looked at why employer-sponsored retirement plans (like 401(k)s and 403(b)s) are often the best place to begin. With automatic payroll contributions, tax advantages, and employer matches, these plans provide one of the simplest and most effective ways to start building wealth.

But enrolling in the plan is just the first step. The next — and often more confusing — step is deciding how to invest the money once it’s inside your account. That’s what we’ll cover this week.

💡 This Week’s Focus: How to Invest Within Employer Plans
Enrolling in your employer’s retirement plan is just the first step. The real question is: what happens to the money once it’s inside the plan?

Most employer plans provide a menu of options. While every plan is different, here are the most common choices:

• Target-Date Funds — Pre-mixed portfolios tied to a retirement year (like 2050). They shift from more stocks to more bonds as retirement approaches.

• Stock Funds — Invest in companies of different sizes (large, mid, small) and often include international options.

• Bond Funds — Focus on government or corporate bonds, offering more stability but slower growth.

• Balanced Funds — Combine stocks and bonds in one package for built-in diversification.

• Specialty Funds — Niche options like real estate or sector-specific funds (higher risk, less common).

👉 Not every plan has all of these, but most include at least a stock fund, a bond fund, and often a target-date or balanced fund.

The variety is meant to give you flexibility — but don’t let the long list overwhelm you. The key is knowing what each fund does and choosing a mix that fits your goals and comfort level.

👉 Contribution Limits: In 2025, you can contribute up to $23,500 into an employer-sponsored plan (401(k), 403(b), governmental 457, or Thrift Savings Plan).

If you’re age 50 or older, you’re allowed an additional $7,500 catch-up contribution, for a total of $31,000.

If you’re age 60–63, the catch-up is even higher — $11,250 — which raises the total to $34,750 if your plan allows it.

Remember: always contribute at least enough to get the full employer match — that’s free money you don’t want to leave behind. After that, aim to increase contributions toward the annual limit as your budget allows.

📖 Verse of the Week
“By wisdom a house is built, and by understanding it is established; by knowledge the rooms are filled with all precious and pleasant riches.” — Proverbs 24:3–4 (ESV)

Just as a strong home is built with wisdom and understanding, your financial future is built the same way — not by chance, but by making informed, thoughtful choices. Choosing wisely within your employer plan lays a foundation that can support you for decades to come.

How to Assess Your Options

Looking at a long list of funds in your employer’s plan can feel overwhelming. But you don’t need to be an expert to make good choices. Focus on three key principles:

1. Costs (Fees and Expenses)

• Every fund charges an expense ratio — a percentage taken out annually to cover management and operations.

• These fees may look small (0.50% or 1%), but over decades, they quietly eat away at your returns.

• Example: If two funds both earn 8% before fees, but one charges 0.10% and the other 1.00%, the difference could add up to hundreds of thousands of dollars by retirement.
  👉 The bottom line: lower fees mean more of your money stays invested and working for you.

2. Diversification

• Diversification means spreading your money across different investments so no single one can make or break you.

• A good plan includes a mix of asset classes: stocks for growth, bonds for stability, and sometimes international funds for global exposure.

• Diversification helps smooth out the ups and downs. If one investment is struggling, others may be performing better.
  👉 The bottom line: don’t put all your eggs in one basket.

3. Simplicity

• Many people feel they need to pick 7–10 funds to “do it right.” The truth? Often 2–3 well-diversified funds are plenty.

• For example, one U.S. stock index fund + one international stock index fund + one bond index fund can cover all the bases.

• Adding too many funds doesn’t usually improve returns — it just adds complexity.
  👉 The bottom line: a simple, consistent strategy usually beats a complicated one.

Why Index Funds Are a Smart Choice

Whenever possible, look for low-cost, no-load index funds in your plan:

• Index Fund: A fund that simply tracks a whole section of the market, like the S&P 500. Instead of trying to “beat the market,” it mirrors it.

• No-Load: This means you don’t pay a sales commission when buying or selling the fund.

• Low-Cost: Expense ratios under 0.5% (and ideally under 0.2%) keep more of your returns working for you.

📌 Example: The book The Simple Path to Wealth recommends the Vanguard S&P 500 index fund (VFIAX), but many plans also offer similar funds through Fidelity (FXAIX) or other providers. These funds give you broad exposure to hundreds of the largest U.S. companies at a fraction of the cost of actively managed funds.

• If you’re comfortable with more risk and have a long time until retirement, you may choose to invest mostly in stock index funds.

• If you prefer a smoother ride or are closer to retirement, you can add bond index funds for stability.

👉 What if your employer plan doesn’t offer an S&P 500 index fund or similar option?
That’s where Morningstar’s free account comes in handy. You can type in the fund name or ticker from your plan, then compare options side by side while focusing on the key metrics you now know:

• Low cost (expense ratio)

• No-load funds (no sales fees)

• Broad diversification

A Simple Starter Allocation

So how do you actually put this into practice? While every investor’s path is unique, here’s a common framework based on time horizon — how long you have until retirement:

💡 Remember: There is no one-size-fits-all approach. The right mix depends on your personal situation, your risk tolerance, and your goals.

• Example: Tom has been saving diligently for 50+ years and is nearing retirement with a larger nest egg. He may lean heavily toward bonds to preserve what he’s built.

• Example: Jill is also nearing retirement but only started saving 10 years ago. She might lean more toward stocks in hopes of catching up.

Same environment, different needs. As Morgan Housel reminds us, two people can live through the same market conditions and have completely different experiences. Your path should fit your life, not someone else’s.

🔑 Key Takeaways

• Enrolling in your employer plan is only the first step — how you invest inside the plan matters most.

• Focus on low costs, broad diversification, and simplicity when selecting funds.

• Index funds (like S&P 500 or total market funds) are powerful building blocks because they’re low-cost, no-load, and widely diversified.

• Your stock/bond mix should reflect your time horizon and risk tolerance — not someone else’s path.

• Tools like Morningstar can help you compare funds and choose wisely if your plan doesn’t clearly offer index options.

🎯 Weekly Challenge
Log in to your employer’s retirement plan this week. Check:

• Have you reviewed the funds you’re invested in — and their fees?

• Are you diversified across stocks and bonds, or too concentrated in one area?

• Do your choices align with your time horizon and comfort level with risk?

If not, take one small step — like comparing one of your funds on Morningstar — to build confidence in your investment decisions.

💬 Reflection Questions

1. Do I understand the fees I’m paying on the funds in my plan?

2. Am I diversified across different types of investments, or too reliant on one fund?

3. How does my time horizon (years until retirement) affect the mix of stocks and bonds I choose?

4. What’s one adjustment I can make this week to better align my plan with my goals?

📢 What’s Coming Next
In the upcoming weeks, we’ll continue Where to Start Investing by looking at options outside of employer plans — starting with IRAs (both Roth and Traditional). You’ll learn how they work, how they differ from 401(k)s, and how they can complement your retirement strategy.

Stay steady. Each wise choice builds a stronger foundation for your financial future.

🔁 New here or missed a few? You can read all the previous newsletters right here: financebyfaith.beehiiv.com

Blessings and financial peace to you!