401k-Holding fast but..........

[RickB]

Pardon my being blunt here.... but that is simply stupid.

It is totally wrong and completely idiotic.

If you have access to a 401K when you are fresh out of school, and you participate in it appropriately you will usually find that when you retire your home is your most valuable asset.....followed by your 401K.

I've seen many times over the years where the 401K has actually exceeded the value of the home.

401K's are designed where YOU the owner, "manage them" (to use your phrase above) That said, yes, you can hire an outside manager to do that for you if you wish but that's optional for those accounts that have that feature. The funds in the account are managed (if that is what you're trying to say) but in most cases, the 401K account will be a less expensive way to access those funds than buying them normally.

You are a bit correct though in that the person putting the money into the 401K (the owner) is the last at the trough.... meaning, they are going to get whatever the value of the account is whenever they decide to take it out.

Keep in mind that all 401K's also have a fixed account (not something I personally prefer) that might be paying a fixed rate of 3% or something like that.... zero market risk, zero management feeding at the trough...

401K's are arguably the best investment vehicle going..... Those 401K's that offer the Roth option, perhaps all the better.

Agreed.

 

[Richard]

Someone's been steering you wrong.

I had a 401K through Fidelity with my last employer and there were no management fees. At my current employer, I still have Fidelity and the fee is about $38 per year. I'm hardly the last at the trough.

Certainly not arguing your points.....however, if you look up one of your specific investment funds you will find that they will have some internal fees. After all, they have to keep their lights on.

So there are two different management fees to be clear....

There is the management (internal) fee of the fund itself that you pay for them to manage that specific bucket of assets.....

There is an ACCOUNT management fee where you hire a manager to organize and manage your individual funds, moving them as needed so your job is simply put funds into the 401K and they do the rest. Under that logic, you are indeed paying the "account" manager a fee as well as paying the specific fund managers a fee.

Still.... the fee structures inside a 401K are usually much more efficient than a normal account that you have managed.

 

[Richard]

I have several stories I tell when I'm giving a group presentation

(for those who are unaware, I've been in the investment biz for over 30 years and today, help State employees with their 401K's and their pensions)

Anyway the story:

Setup: You are an avid hunter and tomorrow is first day of open season.....you're ready to go in the morning when you discover you are OUT of ammunition so you have to go to the store tonight.


Normally, your ammunition is (example) $20/box.

You get to the store and see an endcap where your ammo is on sale for $5.00 box.... "what might you do"

(someone in the crowd usually blurts out "FILL MY CART!!! HAHAHAHAHAHA) (for some reason they think they're being cute when that was the exact answer I was looking for!!)


Me: "ok, so you're busy loading your cart when you hear a voice behind you (it's me) and you hear me say "GREAT, I need some of that ammo too... hmmmm.....wait.... I see it's on SALE???? ..... NOPE, I think I'm going to WAIT to buy my ammo until AFTER the sale goes off!!!!!!


I then sit back and watch their eyes.... after a pause they get a confused look on their face...someone might say "THAT'S STUPID!!!!!"

I continue "FURTHERMORE, I think I have some ammo in my safe that I paid $20 for....and now it's on sale for $5.00..... yeah, I think I'm going to go home and throw it all away!!!"

To which I might hear a voice in the crowd call me "you dumbazz!!!" and the crowd laughs at me....


Then I let them know I've been doing this for over 30 years and if we exchange the word ammo for stocks, I've HAD that conversation with people over my career.

This is when they generally go silent.....


I'll continue to try to show them that when we talk about ammunition, they can quite easily see how they SHOULD buy more when it "goes on sale" (market goes down)

I let them know that when people talk about their 401K's they usually freeze whereas they JUMP over their ammunition.

I go on to tell them that my hope is 30 years from now, when I'm dead & buried, when their market goes down them, they remember today's conversation and perhaps give pause to becoming irrational.....

If they then get successful at it, I tell them that I allow them to find my grave and share a beer with me by pouring one over me.

 

[MossRoad]

Pardon my being blunt here.... but that is simply stupid.

It is totally wrong and completely idiotic.

If you have access to a 401K when you are fresh out of school, and you participate in it appropriately you will usually find that when you retire your home is your most valuable asset.....followed by your 401K.

I've seen many times over the years where the 401K has actually exceeded the value of the home.

....

Location, location, location.... :laughing:

My wife and I have been putting 15% of our income into IRAs and 401Ks since the late 80's. They FAR exceed the value of our little old house by more than 10X, even after the past few weeks' troubles.

They have been the absolute best thing we could have done as far as ease of use. Compound interest is magical. :thumbsup:

 

[Richard]

One tragic thing I see is sometimes people get a match. Say, $25/pay period...... so they ONLY put in $25 in order to get the match and no more.

I try to educate them to the shortcomings of that logic.... some understand and some don't. (or don't want to)

I then come across the person who's putting in $1,000 per pay period (many of these folks get paid once per month)

What I get to encounter is totally across the board.

 

[riptides]

... Compound interest is magical. :thumbsup:

Over time!

 

[Richard]

Location, location, location.... :laughing:

My wife and I have been putting 15% of our income into IRAs and 401Ks since the late 80's. They FAR exceed the value of our little old house by more than 10X, even after the past few weeks' troubles.

They have been the absolute best thing we could have done as far as ease of use. Compound interest is magical. :thumbsup:

If your 401K has the Roth option.... jump on it too. Many people are not aware that this option now exists for them inside their 401K. Used to be in the old days, it didn't exist. If your 401K "doesn't have a Roth option"..... it might have added it.

Nice thing about the 401K Roth option.... in a Roth IRA you can deposit $7,000. In the 401K Roth, you can deposit (depending on ones age) $19,000 or $25,000 AND CONTINUE to fund your Roth IRA.

So you can build the Roth bucket far faster in the 401K.

 

[MossRoad]

Over time!

Yes, it's over time. We're in it for the long haul. If I live to be 100, I'll still have enough money to leave something for my kids/charities. If I croak tomorrow, I hope my wife's new boyfriend will appreciate what I did with her financially. Hopefully he likes tractors and fishing. It would be a shame if he didn't

 

[Richard]

If I croak tomorrow, I hope my wife's new boyfriend will appreciate what I did with her financially.

That would be Mario the pool boy in a speedo.....

 

[MossRoad]

If your 401K has the Roth option.... jump on it too. Many people are not aware that this option now exists for them inside their 401K. Used to be in the old days, it didn't exist. If your 401K "doesn't have a Roth option"..... it might have added it.

Nice thing about the 401K Roth option.... in a Roth IRA you can deposit $7,000. In the 401K Roth, you can deposit (depending on ones age) $19,000 or $25,000 AND CONTINUE to fund your Roth IRA.

So you can build the Roth bucket far faster in the 401K.

My old 401K didn't have the Roth option. My new employer's does, so all my contributions and their matching goes there. Our conventional IRA's were converted to Roth the first year that was available. We'll never be able to afford to put those MAX numbers away, but for our plan, since we've been in them so long, we don't need to. We should make more in retirement than we do working. Add social security on top of that (if it still exists by then) and that's just gravy on the potatoes. :licking:

 

[MossRoad]

That would be Mario the pool boy in a speedo.....

Hey, I used to be that guy! When I was in college at the local I.U. extension, my friend and I were lifeguards. Pretty healthy specimens at the time. :laughing: About 2/3 of the classes were filled with 30ish year old divorced women going back to school to get a degree. They'd take us to the local pub for lunch and buy us underaged boys beer while we ate lunch and discussed English literature. :laughing: Nice ladies. No hanky panky, as both of us had significant others (we both ended up marrying our high-school sweethearts), but they sure liked looking at us. :laughing:

Today, that would not be the case. I look like this guy --> :dance1:

Bald and round.

 

[riptides]

Yes, it's over time. We're in it for the long haul. If I live to be 100, I'll still have enough money to leave something for my kids/charities. If I croak tomorrow, I hope my wife's new boyfriend will appreciate what I did with her financially. Hopefully he likes tractors and fishing. It would be a shame if he didn't

LOL.

Our adviser and I met right before the turbulence, had to move some stuff around. We we started projecting stuff out, there was no way I was leaving dollars on the table.

Trusts and Charities. along with the kids are now applicable.

 

[riptides]

That would be Mario the pool boy in a speedo.....

Hmm... I wore a speedo once upon a time. Some stuff has shifted around. :shocked:

 

[Richard]

My new employer's does, so all my contributions and their matching goes there.

The matching probably doesn't go in there.

The match dollars have (likely) not had the taxes paid by your employer.... YOU haven't paid any tax on the match dollars. Therefore, they can not by definition, go into the Roth account.

If your account has a "balance" link, go look at it. You will have a value for your Roth contributions and a value for your employer match. The match dollars will be taxable.

 

[MossRoad]

The matching probably doesn't go in there.

The match dollars have (likely) not had the taxes paid by your employer.... YOU haven't paid any tax on the match dollars. Therefore, they can not by definition, go into the Roth account.

If your account has a "balance" link, go look at it. You will have a value for your Roth contributions and a value for your employer match. The match dollars will be taxable.

Thanks!

 

[Jstpssng]

401Ks are stupid, we should go back to employer funded pensions. Look at how well those are working out in the last couple of decades.

 

[Richard]

Why not have them both and diversify!!!

 

[MossRoad]

I had one at my first employer. It got frozen after 19 years of service, back around 2008. So I had a pension, a 401K and an IRA. Very nice. At my current employer, they just eliminated the pension, so I was not eligible to get into it. They do have a very generous 401k, though, so I rolled my old 401K into the new 401K. Then a few months ago I got an offer from my old employer to do a one-time lump-sum payment to settle my pension. I opened a pension rollover account (or something like that) and took the money.
It was not great.
It was not horrible.
It was exactly fair.

Well, that kinda stinks. :laughing:

Anyhow, that one is still sitting in cash, because I was debating on what to do with it. Kinda nice to see at least one investment not loose over the last couple weeks.

 

[caver]

A few years before I retired my employer wanted to dump the pension for any new hires at contract renewal (IBEW). Instead they would get a better 401K than what we had. Our pension was through the NRECA. Our CEO said they wanted to slowly get out of the pension thing. We could have been fed a line either from him or union leaders. I meant to ask NRECA about this but always forgot.

 

[Jstpssng]

My comment earlier was prompted by the number of times I've seen companies fold, leaving their employees and/or retirees holding the bag; or conveniently found reasons to terminate long term employees just before they are eligible for retirement. At least you have some control over a 401k, including how much you pay in and how much risk you are willing to take.

The Dow went up almost 2000 points today, hopefully it wasn't just a last gasp.