Please explain 401k?

Usually employer plans allow you pick from 5-10 different investment options. You should not go into the stock market with 100% of your funds. Many advisers recommend no more than 25% in the market at age 25. By age 50, no more than 50% in the market.

I don't invest in stocks, but rather mutual funds which are a collection of 50 or more stocks. This spreads the risk out. Warren Buffett says a stock market index fund can produce results comparable to funds managed by Fidelity, or other large 401k companies. I would agree with him. Warren is an old guy with a lot of money and experience, in Omaha.

You dont put money into a 401k to take it out next week, you put it in there for 30-50 years.

Inflation is just as big a risk as the stock market is....if there is inflation of 5% per year, you are losing 5% of your savings every year.....10 years in a row is a 50% loss that is permanent, that you will never get back. So actually inflation is a bigger risk than the stock market, because the market can go back up after it goes down.

 

You can gamble in the stock market but you don’t have to. Making investments over a period of time like a monthly contribution to a IRA/401K that is invested in well diversified mutual funds with the goal of accessing the funds at retirement age is not gambling. There is no period of time in the entire history of the stock market where if you did this over a long period that you would have lost money.

Now if you got a hot tip and deduced to put all your money into a single stock and hope to cash out big next month when some news is released or something that is gambling.

I own three rental houses and my mutual fund investments are currently returning me more than the rentals. A lot less hassle too.

 

Good answer.
Think of it this way. Say you only did the 3% company match and chose their least risky investment option, which is basically like a low interest cd. When they put in their matching 3% you just got a 100% return on your investment.
I'll take that any day.

 

The 401k, is a pre tax contribution and is subject to a maximum per year. Starting at an early age is best.
As the person ages, a few provisions are made for contributing higher amounts as “catch up” contributions.

Roth IRAs are an option as well. They do have a number of the same conditions as a traditional IRA. One of the biggest differences is that contributions are post tax money, and withdrawls are not taxed.

A good financial plan should consider both as a hedge.

 

I am wondering still why anyone would even risk it, why do you think people were crying so much in 2008/9 when they lost money in the stock market?

Mutual funds took a crap.

Even those who were using bonds as investment vehicles took hits.

Nothing was fixed when the mortgage backed investment vehicles took a crap, we still have them and they can again trigger an "adjustment" in any and all markets.

There is no safe investment unless you control it 100% and 401k and other pre-tax retirement schemes don't allow that to happen.

 

People cried because they panicked and sold. Weak investors often lose out.

 

And had regained all of that a couple of years later, and have since doubled. TWICE. I made a LOT of money before and after 2008, and didn't lose ONE RED CENT in the stock market drop. The only people that get hurt on a roller coaster are the ones that jump off in the middle of the ride.

OK, sooooo much bad advice on this thread, it's scary. Allow me to make a few points.

1) Any 401K plan with a match is decent. Take the money. It's free money. Don't walk away from free money, because the match is free money. Like, really free.

2) The average stock market return has been close to 12% over the last 100 years. It goes up and down in the short run, but it goes up in the long run. If you invest $500 per month in the stock market from age 25 to age 65, the total nest egg at 65 will be $3,875,000 and change. So yes, you will be well off.

3) Vesting means that the money the company puts in becomes yours. If there is no vesting period, the money they put in is yours immediately.

4) There will be NO PENALTY if you leave the company. You can, and SHOULD take ALL your money with you. Just do a DIRECT ROLLOVER from their 401K to an individual IRA with any investment company of your choosing. Vanguard, Fidelity, American Funds, whatever. NO taxes, NO penalties, and the company doesn't keep any of it. Every time you leave a company, roll it over to your IRA, so you control it and you don't have to deal with your old company to change your investments.

5) Keep your cotton pickin' fingers off your retirement accounts until you retire. If you take it out early, you give up the tax shelter (that is, you have to pay the income taxes you didn't pay when the money went into the plan) plus a 10% penalty. After 59 1/2, no penalty, but income taxes will still apply. Don't give the government any money they don't deserve. Keep your mitts off your retirement money.

6) Invest only in things you thoroughly understand. Do not invest in something because somebody gave you a hot tip. Do NOT invest in ANY single stock, most especially, as mentioned several times here, in your own company stock. Do not invest in annuities unless you understand what they cost you compared to mutual funds. To begin with, I feel safe in recommending an S&P 500 index fund or a Willshire 2000 index fund (sometimes called a Total stock market index fund). Don't worry about target date funds, or bond funds, or any of that at age 25. 100% stocks will give you by far the best returns, and you have all the time in the world to recover from a stock down turn. LEARN about mutual funds. There's about 7,000 of them to choose from. PICK GOOD ONES.

7) Invest it, and forget it. It's nor real until you retire. If the media calls for the sky to fall....... that's the time to buy, not sell. Remember, buy low, sell high. And never sell before retirement.

8) if the company has a ROTH 401K option, TAKE IT TAKE IT TAKE IT. You pay taxes on the money you contribute, but you will NEVER pay ANY taxes on the interest it accumulates, and the interest will be 90% plus of the account at retirement. Tax free money. Really! Can you believe it?

9) Invest in the company 401K up to the maximum match, and the rest of your investment should go into a ROTH IRA. Set it up with any mutual fund company. See above. You take the free (match) money FIRST, then the tax free money. 10 % of your income has been mentioned, which is as good a number as the next, but the question you should answer is "how rich do you want to be?". While young, unattached, no kids, no obligations, 20% would also be an awesome number and get you well ahead of 99% of your peers.

10) If you are saving for a goal such as a down payment of a house, business investments, etc, stay out of the stock markets, mutual funds, etc. Just plunk it into a money market account until the stack is high enough. The stock market goes up and down enough that any money you need in the next 3 or even 5 years should go into savings, not long term investments. If you have goals to save for, save as much as you want -- but not in a 401K or IRA.

 

It's only gambling if you dont know what you are doing. Like Accidental Trucker wisely said, invest in industries you understand.

I understand technology and gaming. Did my own research and found Take-Two surged after they released GTA5. Then surged again when they exceeded expectations on GTA Online. I saw it on the stock charts for myself. Now I know GTA6 is due out next year, and Take-Two isnt a company known to disappoint, and its one of America's most popular games. Its reasonable for me to justify putting some money there. I did the homework and as a gamer I think it's well placed to do well for the next 5+ years.

Theres risk, but its a solid stock with consistent growth and a popular product backing it up. Gambling is a zero sum game. With stocks you own a piece of a company in an industry you hopefully know a few things about.

 

See that's you, and a bunch who have a grip on it, but for most, they can't figure out what the markets are let alone understand where to put their money.

Back in 2009, a lot of people were in such a panic that they had to open up more suicide hotlines in California (I am not making that up).

Many want to listen to these experts who tell them to do this or that and they get all caught up and when something crashes, they are depressed and upset - 401k is just the same.

 

You should definitely read a couple good rep books before jumping in. Benjamin Franklin said an investment in knowledge pays the best interest. Certainly applies here.