Your 410k is dumb
The 401k is a great way to get started for most Americans, its easy, it has to deal with your work and the money comes right out of your paycheck so you never have to do anything. Damn were lazy.
But the 401k is littered with caveats, the big banks that run these institutions have a lot of ways to trick you into doing dumb things. Its not that the people that come to your work and give you the presentation are evil, they are just taught stupid so they teach you stupid.
I have been investing for a very long time and since I don’t work for one of these big companies I will tell you some truths about investing a 401k that you will not learn from a big company.
Low cost index funds are perfect for normal investors
They are out to get you
They are trying to hold you down
The markets are NOT risky
You can do it
First off let me explain who ‘they’ are. They are the general Wall Street financial community at large, these people work all day long in big building trying to figure out how to take more of your money. But they don’t do it in the way that many people think, they are very sneaky, they lurk in laws, they lurk in fees and they lurk in education, more on education towards the end.
Low cost Index funds are great for normal investors
Odds are that you are a normal investor, you have a 9–5, don’t have a tremendous amount of knowledge about the investing landscape and contribute to a 401k or IRA. Cool! If this is the case then you are in luck because index funds are for you, index funds are simple tools with extremely low fees. S&P or Nasdaq Index fund are the best for you and will serve you well.
Look for these options in your retirement accounts. There is zero need to go outside of these if you don’t plan to get more educated in different investment strategies. Don’t complicate things or try to go “simpler” by employing a target date fund or any other safe sounding fund. You want the Index funds, its the lowest fee and outperforms anything else on average year over year.
They are out to get you
They are out to get you, they are after your fees which is why you want an Index fund, the more complex and the more decisions they have to make the more they will charge you. They want you in 5 different mutual funds because that is 5 different income sources! One will be high, one will be low but on average you will pay a much higher fee rate to them. They just want those fees baby!
They are trying to hold you down
By holding you down I mean that they aren’t truly interested in you making money, they could care less. No where in any of their literature does it say they care about making you money, no one talks about helping you retire well and as a matter of fact the only thing they care about is keeping you in those funds for as long as possible. Remember they make fees every quarter or year depending on the fund.
Think of this another way, these same large companies that manage all this money have other funds that do 15–20% per year, nearly every year. There are lots of firms on Wall Street that greatly outperform the markets but guess what, they won’t give you or I access to these. These are not even options.
Something else they did is to put laws into effect “protecting” consumers by saying that unless you are worth 1 Million and make over $300,000/year you can’t even buy them at all. They want you paying fees.
The markets are NOT risky
Many people are scared and I can’t blame them, its hard to work for years and lose everything, lose half or a good amount. Its not really something that is comfortable, especially when you have a large account that has grown over the years. But the market is not risky.
Sure there are down days, sure there are down years but that is just how the economy works, we are a capitalistic society and people buy sometimes and not others. Its how it works, it has worked this way and will continue to work this way for the future, forever. Ok, maybe not forever but for a very long time to come.
But lets look at ‘risk’ from another perspective. If you think the markets are risky what else are you going to do with your money? If you think you are just going to keep the money in your savings account that is not going to work, due to inflation you will lose 4% of your moneys buying power every year. Prices increase all the time so you can buy less with your cash savings.
At some point the market will fall, guaranteed! This always happens and you cannot avoid it. It doesn’t matter if you invest in stocks, savings, real estate, annuities or other stock investments the markets will fall. But you know what, they come back as well. Every time.
So when the market falls remember all of those other assets will fall too! There are assets that claim to never fall but they have drawbacks and what they all have in common is that they will never give you the appreciation you need to retire securely. So you will trade the safety of not losing capital for the inability to retire, its just in the numbers.
That is not a good trade. If you are worried that the market won’t ever bounce back then you have an entirely different set of problems that no solution will solve.
You can do it!
If you ever listen to Dave Ramsey they have a millionaire hour where people call in and tell their story of how they became a millionaire, its very cool and you should listen to it. But the people that call in on that show are never celebrities, wall street people or people that inherited a ton of money. They are normal people, people that consistently follow the rules and do the right things over and over again to the point where they have $1M+. Anyone can become a millionaire, you have the tools, you just have to want to.
A note on financial education
When your ‘educator’ comes to teach you about your investments odds are these people are stuck in one way of thinking, usually they are taught to have YOU make the decision on the investments. This is the legal way to do it because they don’t want to be responsible for your failure, but they won’t make you successful this way. You see you have no damn clue about what you are doing, you aren’t looking at financial stuff all the time, its their job to tell you want to invest in, but they won’t. The will tell you about all 40 options but won’t really give you a concrete answer and even if they did this guy/gal in front of you is the best of the best? How did you get so lucky!
For most of you the most advice you will receive regarding retirement is in these meetings with these 401k people and many of them are dumb.
So as stated above get the index fund, 100% allocation. Don’t buy the gold fund, the aggressive fund, the large cap fund. Just get the Index fund. I have done quite a bit of research and every once in a while the large cap fund will lead but then it fails to lead for 5–6 years and the index fund outperforms
The end, the truth
Don’t complicate the issue unless you are going to invest yourself or pay someone who is really really good at it. Just buy the index funds. You need money to retire and the index funds can get you there through decent returns, low fees and consistency, where other option have boom and bust years the index funds continue to perform from decade after decade.
Its not that hard, don’t make it hard, but they won’t tell you that and that is why your 401k is dumb because the industry is designed to misinform you.
