Like the others said, if your employer offers any kind of match (typically 50% to 100% of the first 5% or so), invest at least that much into your 401k.

Plus, you have to take into account the fact that money going into your 401k is pre-tax. So you can invest $5000 a year into a 401k, and it only costs you $3750 in after-tax money.

So let's do the math. My current employer matches 100% of the first 5%, so I invest 5% of my pre-tax income into my 401k... 100% guarenteed return (for the first year). Even if I "only" make 10% (I wish!) every year after that on that money, it's equivalent to making 30% on your after-tax money for 9 years. And how likely is averaging 30% every year for 9 years?

Check it out. Say I put in $1000 a year, which is matched by another $1000. Remember, if I didn't put that money in the 401k, it would get taxed, and I would only have $750 to invest in my 30% stocks each year.

So I'm working with $2000 a year at 10% compared to $750 a year at 30%

Yr 401k Stocks
1 $2200 $975
2 $4620 $2242
3 $7282 $3889
4 $10210 $6030
5 $13431 $8814
6 $16974 $12433
7 $20871 $17137
8 $25158 $23253
9 $29873 $31203

So it takes 9 years to make more money with after-tax money. However, this doesn't count the taxes you're paying on the 30% stocks money as you buy and sell different securities (unless you have one or two stocks that you think you can buy and hold and make 30% a year for the next 9 years).

And of course, all of this is based on the supposition that you manage 30% returns year after year after year. Even if the stock-market returns 0% over the next 9 years, the 401k will still have $18000 in it (for an investment of $9000 pre-tax money - which is equal to after-tax cost to you of $6750)

$18,000 for $6750 even if the market returns 0% for the next 9 years seems like a good deal to me!!

Of course, your 401k may only match 50%. So crunch the numbers yourself. I still say a guarenteed one-time 50%, plus your tax savings is better than a hypothetical 30%.