401 k - A plan to be poor
Most people are shocked or confused when I tell them that the 401k is a plan to be poor. It's quite simple. You invest money in a 401k to defer income tax until you are retired. You are assuming that you are making more money now than you will when you retire and therefore be taxed at a lower rate than now. In other words, you are planning on being poorer when you retire. I'm ok if this is your plan. It should just be clear to you what you are doing.
Of course there are some problems with this plan. You are also assuming that taxes will not go up. When does that ever happen? How is that even possible with the debt trajectory that we are on in this country?
You might tell me that you invest in a 401k to defer tax on investment gains so that you can improve your investment return. There is much better way to do this. (Guess which investment vehicle). In fact, instead of deferring income until you retire, you can defer income permanently.
I also do not like 401k's because you do not have true control of your investment. Someone else has control and you are paying them your profits. You have to trust Wall Street to make good decisions. Past history has shown how well that has worked out.
And frankly, the returns just aren't good enough. Take an honest look at your 401k returns over the last 10 years. How did you do? If you weren't at LEAST 12%-15%, your money was in the wrong place.
Now this is not to say that you should not put anything in a 401k. If your company matches, I advise contributing the minimum that gives you the maximum company match.
Also, if you have a IRA (or you are able to move your 401k into an IRA), there are ways to purchase individual properties.
But the bulk of your investment dollars should be where it gives you the best advantage - real estate.
Of course there are some problems with this plan. You are also assuming that taxes will not go up. When does that ever happen? How is that even possible with the debt trajectory that we are on in this country?
You might tell me that you invest in a 401k to defer tax on investment gains so that you can improve your investment return. There is much better way to do this. (Guess which investment vehicle). In fact, instead of deferring income until you retire, you can defer income permanently.
I also do not like 401k's because you do not have true control of your investment. Someone else has control and you are paying them your profits. You have to trust Wall Street to make good decisions. Past history has shown how well that has worked out.
And frankly, the returns just aren't good enough. Take an honest look at your 401k returns over the last 10 years. How did you do? If you weren't at LEAST 12%-15%, your money was in the wrong place.
Now this is not to say that you should not put anything in a 401k. If your company matches, I advise contributing the minimum that gives you the maximum company match.
Also, if you have a IRA (or you are able to move your 401k into an IRA), there are ways to purchase individual properties.
But the bulk of your investment dollars should be where it gives you the best advantage - real estate.
