conversation: User (matco3825): "A little about me I'm 21 I have all my debt paid off except for my house which is at a 3.2% interest rate and a small signature loan just to help build credit my car is paid off and I have 4k in my savings \n\nI want to start something for my retirement we had a guy come around and offer to help set up a 401k with my job. My work is not matching anything into the 401k so he also suggested a roth. The way he explained it to me is the company he uses for the roth is a 5k minimum to start they have a fee of 2% of your yearly total but they have average 16% return since 98 and no fee to get your invested money out after 5 years interest has to stay until your 60 or there is a fee\n\nSo my biggest wonder is if it is worth it over the traditional 401k I am eventually wanting to try and buy a second house and rent it out so I like the sound of the roth but if anyone knows something there not telling me I would love to know"
  Self: "It sounds like there are perhaps some misconceptions here.\n\nFirst of all, a 401(k)(Roth or Traditional) is not an investment. It's just a type of savings account that offers specific tax benefits.\n\nThere are also Traditional and Roth IRAs which act similarly to 401(k)s. It sounds like he may have been talking about a Roth IRA. He also was talking about a specific investment that he held within his retirement account that has a $5,000 minimum investment and a 2% expense fee. This is a very expensive fund. Generally, /r/personalfinance promotes use of low-cost index funds. I would not recommend following this person's advice.\n\nI would, however, recommend that you start figuring some of this stuff out for yourself. /u/aBoglehead and /u/AutoModerator have linked some good resources. I would suggest that you consider the following questions.\n\n1. *How much should I be saving for retirement?* \n\n    The answer to this depends on your retirement goals, but as a starting point I would try to save 10%-15%. If you feel like you can't afford afford that then you need to increase your income or decrease your other expenses. If you have a decent income then focus on decreasing your expenses. If your income is significantly lower than you would like it to be, maybe you should be focusing on increasing your earning potential instead of saving for retirement.\n\n2. *401(k)?IRA?Roth?Traditional?*\n\n    If you have no employer matching through your employer then it will probably be advantageous for you to focus on contributing to an IRA first. Roth vs Traditional primarily depends on your current marginal tax rate, and expected tax rate during retirement. Roth is a very good choice for many people, but there are quite a few intricacies involved with this decision. [Here's a comparison](http://www.reddit.com/r/personalfinance/wiki/rothortraditional). Ultimately, Roth vs Traditional is probably less important than your savings rate.\n\n3. *What should I invest in?*\n\n    Right now, probably target retirement funds. They will automatically diversify and manage risk for you. You can 'set it and forget it' without knowing anything at all about investing. Invest at a company like [Vanguard](https://personal.vanguard.com/us/funds/snapshot?FundId=1691&amp;FundIntExt=INT) and you'll have access to funds with expense ratios of .2% instead of 2%. If you want to branch out and select your own funds, I'd recommend sticking it in the target retirement funds for now and give yourself some time to learn about different investment philosophies. Almost everyone would be well served by investing solely in low-cost, broad market index funds. Stay away from trying to time the market or buying into individual stocks."
  