Now is the time to start planning for retirement. I would contribute has much as possible. Remember You will not have to pay Federal Tax on contributions.You will pay taxes when you withdraw. You should diversify according to your tolerance of risk. Being that you have 30-40 years till retirement I would go pretty agressive Maybe something along the lines of
55% in a Growth fund
20% in an International Fund
10% in a Small Cap fund
10% in a Mid-cap fund
5% in a bond Fund
Rebalance your porfolio once a year. This is a sure way to buy low and sell high.
not sure what kind of funds your 401k has but you get the jist Good Luck.
All good advice. With a 30-40 year time horizon, my suggestion would be to go 100% equities. 25% each in Large-Cap Index, Small-Cap Index, Mid-Cap Index, and International Index. Rebalancing at least once a year forces you to sell your good performers and buy the not-as-good performers. Each Index rises at a different pace and by rebalancing, you are locking in your gains with one fund and purchasing the others that have not risen as much.
Another thing to think about - you mentioned that you planned to purchase a house. That goal has a different time horizon than your retirement. Since you mentioned mid-20's as your age, let us assume that you will be purchasing in your early 30's, which would give you about a 5-6 year horizon. And, you do not want to be as risky with that shorter timeframe as you would be with your retirement. For this goal, I would suggest a bond fund that is less risky than equities, and will return you 3-4%.
Also remember that with the house, the more money that you put down initially, the less that you will pay in interest over time. Aim for at least 20% down so that you avoid PMI (it's an insurance payment if you have <20% down) when you purchase your house.