Please explain 401k?

You are right, the majority of people do not know how to invest for retirement using a 401k. For a 1% fee, you can have a local investment adviser through your bank. A person that you can go to with questions and assistance. I think it is worth it for at least a 10 year period, maybe longer, depending on the person.

The old defined benefit employer plans handled the investment of plan assets, and took the risk of market fluctuations, while the employee got a flat dollar amount per month for their lifetime....employees didnt have to learn about investing.

I managed my own 401k for 15 years, and then I decided the balance was large enough that I needed professional help. With that help I felt more confident in where my funds were invested...I stopped looking at the account balance every week and trying to figure out what to do with the account.

I was in an investment club where we would buy and sell stock....we worked hard but only managed to break even. I sold my stock shares in the club, and went with mutual funds and non-stock investments, with moderate risk. I got moderate returns and less volatility in my retirement fund.

 

This advice should come with a VERY BIG ASTERISK!!!!

Very few bankers are licensed to sell securities; that is: very few bankers are licensed to sell stocks and bonds. The license is difficult to get, and comes with a lot of regulations most banks don't want to deal with.

As a result, many call themselves investment advisors, but they are actually insurance salesmen, selling things like whole life life insurance and annuities. NEITHER are good investments. You will realize MUCH lower returns, without getting anything in return.

If you would like to have some help with your investments (and there's absolutely NOTHING wrong with that -- most people SHOULD), seek out an actual investment advisor. A CFP (Certified Financial Planner) can be hired on a fixed fee basis (so much per hour) or on a commission basis. You can also hire a broker that will sell you mutual funds (on commission) and advise you as well. The primary function of a financial advisor is to talk you off the ledge and keep you from selling the next time the market tumbles. Again, interview several and pick one you are comfortable with. Not the one that makes you feel like you just walked off the car dealer's lot.......

The golden rule still applies, even with a financial advisor in your corner: never ever invest in anything you do not thoroughly understand.

 

Accidental trucker is spot on. It amazes me how many people are so opposed to investing when it is by far the easiest way for the average American to become a millionaire. When I say easy I mean it doesn’t require any special skills, high paying job, etc, it just requires commitment and dedication. If you start at a young age and make small but regular contributions and leave it alone you will become rich. Everyone doubts it though and does nothing and then gets stuck in a rut.

I am in my early forties and started investing in my twenties. My investments already are making me enough to live solely on them if I desired.

 

If you have any debt whatsoever... car, medical, credit card, student loan, anything other than your house... do not save for retirement. Pay absolutely every debt off, cut up the cards. Get on a written budget. Save 3-6 months of expenses.

Once you have that done, invest 15% into your 401k, into growth stock mutual funds. Throw everything else at your house. Once the house is paid off, throw the max into your 401k. Once that is maxed for the year, throw the rest into a Roth IRA. In fact, if your employer has a Roth 401k option, go that route as well. Their match will be traditional pretax money. So you’ll pay taxes on that someday. The Roth contribution you make is after tax money. It’s going to be growing tax free.

When you here these people talking about borrowing or taking out a 401k loan, make absolutely certain you mark their name down as someone you don’t want to take any financial advice from lol.

That debt is due IMMEDIATELY upon the end of your employment with all the penalties and interest. And make no mistake, all jobs come to an end. Either you quit, get fired or you die. Does any of those sound like a good time to have the IRS throwing you in prison or garnishing your wages or coming after your spouse? #### no.

Anything you’d need a 401k loan for, your emergency fund will cover. And hear me nicely... emergency. Not oh #### Christmas is in December this year? That’s not an emergency.

If you follow the advice I just gave you, you’re a millionaire in 17 years. You’re a multi millionaire in 23 years and you’re a decamillionare by retirement.

 

You are correct, but many banks contract out with a licensed broker. I agree that you dont want to use the banks traditional investments.

 

Dave Ramsey, is that you?



Good stuff, but the number one rule of successful investing is to ..... invest. Steadily, regularly, consistently, without fail.

 

No joke that looked like a cut and paste of Dave Ramsey’s stuff. I have nothing against Dave and I hate debt as much as he does but I don’t completely agree with everything he says especially in regards to investing. I am debt free and think that should be anyone’s top priority but I would never pass up a free match on retirement contributions from an employer.

 

Me too, @Bdog, me too. That said, if someone follows Dave Ramsey's plan to the letter, they will do very, very well.

I still carry a credit card, and just last week used it to rent a car. Saved close to $600 in insurance fees. Now, I could easily lose all that savings by charging everything else on that thing again, which makes Dave Ramsey smarter than me..... but like you, foregoing free money and some of the conveniences credit cards offer is too hard for me.

 

It’s not free money you are passing up. It’s free money you are giving away. Take a 350 dollar car payment and have one for 30 years.

That’s 126k. Nice car. But how much is that car payment when steadily invested over 30 years, at a very conservative 10% return...

759k! Now add a little debt here, a little debt there.. and suddenly “the American Dream is dead and you’ve got to win the lottery to get ahead...”

Absolutely the first priority is to get out of debt. A house divided can’t stand. All your resources need to eliminate the problem as quickly as possible so that every resource becomes freed up to throw into the 401k.

Otherwise, you’re basically taking out a mortgage at 10-30% and throwing that into a 401k and getting 10% on it. How the hell is that smart? If your house or car were paid for, would you take out a loan against them to put in a 401k?

Why not? That’s what you’re suggesting, make no mistake.

 

Calm down, Dave. There's more than one way to skin a squirrel.

I am curious where you get your 10-30% number from though?