Personal Finance

I'm 19, working at Walmart — what should I do with my 401(k) options?

Rich Duprey

Published: December 14, 2024 3:33 pm

The best thing you can do to secure a comfortable retirement is to start young. From your first foray into the job market, a portion of your pay should be set aside for savings. If your company offers a 401(k) retirement plan, you ought to take full advantage of it. Even if your employer doesn’t, opening a Roth IRA that allows your earnings to grow tax-free is the next best thing.

That’s the situation facing a Redditor on the r/walmart subreddit who at 19 years old is just entering the workforce. She works seasonally at Walmart (NYSE:WMT) during the summer and winter breaks and wants to know what’s the best way to take advantage of the company’s 401(k) plan.

24/7 Wall St. Key Points:

• It is never too early to start investing for your retirement, particularly if you are just entering the workforce for the first time. The earlier you start the greater your chance for success.
• There are many strategies you can use to build up your retirement nest egg, but one of the best is to take advantage of an employer’s 401(k) plan, particularly if it has an employer match offer.
• Also: Is your 401(k) optimized for your retirement plans? (Sponsored)

Start early, contribute often

The Redditor is fortunate. Walmart actually offers a very good 401(k) with a 100% employer match up to 6% of a worker’s salary. That means for every dollar the employee contributes to the retirement program, Walmart adds another dollar. Think of it as free money that can supercharge your portfolio. Everyone should take advantage of their company’s employer match plan and contribute at least up to the maximum of the match.

There are strategies to use after that, such as contributing to a Roth IRA or a healthcare savings account (HSA) before going on to max out the 401(k), but getting started with the plan is what’s important and that’s a good first start.

Walmart also offers a similar employer match for purchasing its stock. WMT stock has been a phenomenal investment since its IPO in 1970, generating a total return of over 677,000% with dividends reinvested. A $10,000 investment in Walmart shares then would be worth over $67 million today.

In just the last decade, though, the retail giant would have more than quadrupled your investment. That same $10,000 would be worth $41,200 today. In contrast, the S&P 500 index has returned 262%.

Many paths lead to the same goal

The Redditor also wanted to know what would be a good investment for the 401(k) plan. While I’m not a financial planner, so these are only my opinions, buying Walmart stock isn’t a bad idea. However, you don’t want too much of your money tied up in your employer. Not only are you counting on the company for your income, but you are also betting your retirement on it, too. A good rule of thumb is to have no more than 10% to 15% of your portfolio in your employer’s stock.

And while the benchmark index has underperformed WMT for the past 50 years, an S&P 500 index fund like the Vanguard S&P 500 ETF Trust (NYSEARCA:VOO) isn’t a bad option. 

First, you’re getting instant diversification over the 500 largest companies on the market spread across numerous industries and geographies. That can help minimize volatility. 

Second, the S&P 500 has a proven track record. It has grown at a compound annual growth rate of 10% since its creation. While it doesn’t actually produce that every year — some years it’s more, others less — the long-term average has proven remarkably consistent.

Last, plain vanilla investing is often best for most investors. There is little need to investigate an individual company’s business, its valuation, the future growth prospects, and more. Index investing is a set-and-forget option well-suited for investors who don’t have the time or inclination to analyze stocks.

Key takeaway

There are plenty of other strategies you can use when it comes to finding investments to buy for a 401(k) plan. Target date funds, or a type of investment fund that is designed to simplify retirement planning by automatically adjusting its asset allocation over time, is another excellent choice.

A good decision to make would be to consult with a financial planner that can best advise on options tailored to your specific needs. But the best thing you can do is start investing in the 401(k) plan today and use the magic of time and compound interest to grow your savings into a comfortable retirement nest egg.