If there is a young person here my advice is to max out on 401K and spread out your investments.[/quote]
This is bad advice IMO.
As mentioned, Wall Street will harvest a lot of money off of your 401k.
I’d guess 99% of employees who auto “invests” in 401k’s don’t have a clue what fees are being charged to your account.
For most it’s a way to dollar cost average, a really poor investment strategy.
It’s also hard to be nimble with a 401k. When the inevitable market shocks manifest you’ll probably lose a lot of value – think 2008.
Also, it’s very likely that 401k’s will be taxed at a much higher rate than they are today (think Jerry Brown).
I could see maybe contributing up to your company’s matching in a roth 401k and that’s it.
Why not take that extra money and buy whole life insurance (more flexible), or pay down your mortgage?
Also, the income whole like insurance can be tax free.[/quote]
Wow.
Very few people are able to time the market successfully over the long haul. Yet that is what you advocate with the being nimble comment. People who panicked and pulled their money out in 2008, missed out on the run up of the last few years. Those that kept their money in, recovered fully.
I learned this the hard way – I pulled some of my money out. And left it on the sidelines until about a year ago. My returns are FAR lower than if I’d just let it ride. Dollar cost averaging, would have let me purchase during the lows… as the market was rising.
Many (if not most) people are pretty clueless about the market – the 401k provides a vehicle where they can defer taxes, save for retirement, and possibly pick up a company match. It can be a set it or forget it retirement savings plan.
As far as whole life. Again.. Wow. That’s a great way to make your insurance agent rich. There may be a limited place for whole life in a diversified portfolio… but not for everyone. Term life is a better value. Mixing insurance and investment is mixing cross purposed vehicles.
Next you’re going to tell me about variable annuities and what a great deal they are. (Again, a great deal for the person selling them.)
I’m not an investment guru… but I’ll stick with low cost (low expense ratio) index funds, some real estate, and dollar cost averaging. It’s worked well for me.
I agree that there are some craptastic 401k plans out there. My husband’s plan has these very large front loads. But it still made sense to participate to get the company match and the tax deferment. (I did the spreadsheet calcs to make sure, compared to a self invested IRA.) I feel fortunate that my employer’s plan has very low expense ratios.
FWIW – one of the benefits of the laws that came about after the collapse is transparency on plan fees, expense ratio’s etc. That is a good thing for the employee.
I’m not disagreeing with paying down your mortgage. I’ve been criticized for doing just that. (Don’t remember who yelled at me for that – but it stung at the time.) The advantage to having a smaller/paid off mortgage is that your cash flow improves in retirement… You can live the same on a smaller nest egg if you don’t have to pay a mortgage.[/quote]
I couldn’t have said it better myself. I totally agree on these points. VERY few people are able to successfully time the market over during the long haul.
I’ve also been criticized before in the past for not leveraging and paying off mortgages early or paid cash instead of leveraging.
I learned a long time ago you don’t try to argue with people that think they can always leverage themselves and get rich quick.
