76.8% Return on 401K

[RSKY]

Wife and daughter got their quarterly papers for their 401Ks last week. Both made a return of 76.8%. I had split both their investments between two funds. They are both Kentucky teachers. I couldn't believe it so I went back and looked at their charts and sure enough the market, and their funds, dropped quite a bit last April. The real rate of return if the market hadn't dropped so much last year would have been closer to 40-50%. That is still fantastic.

I have a prepared speech that I give to all young-uns about this wonderful, great, program. Talk to your kids and if a fund is available at their workplace that has any type of matching they can guarantee themselves an early, very comfortable retirement by investing. Even if no matching funds are available they can lessen their tax burden and save for their future.

Unless the government changes the laws. Getting close to politics here so I will end my post.

RSKY

 

[Richard]

No doubt that's a great rate of return.....however, is that the current annual rate? Annualized over the last 3,5 years? Since inception?

There's more layers of the onion to peel back.

That said, I agree with you 100% (I help teachers/State Employees in TN with their pensions & 401K's)

Even better if they have a Roth 401K option. (my opinion) Many do and don't realize it.

 

[5030]

I suspect the 'boom' will go 'bust' and soon. My retirement plan is really climbing but I'm not holding my breath as to longevity.

 

[MossRoad]

401K's are a great tool for investing. Especially if your employer does matching.

Mine is currently doing 50 cents on every dollar I put in up to 6% of my income.

So for every buck I put in, they give me half a buck. That's 50% interest right there. Plus it's making a decent return in the funds that I've chosen.

Granted, I'll have to pay taxes on it as I pull it out. I'm OK with that.

A ROTH 401K would be even better, but I don't have that option.

We do have ROTH IRA's that we converted from conventional IRA's as soon as we were able. Those are pretty nice too. No matching, but still a great investment tool. You can do a lot with that money with no penalty.

 

[Hay Dude]

I suspect the 'boom' will go 'bust' and soon. My retirement plan is really climbing but I'm not holding my breath as to longevity.

If you can borrow the banks money at 3-4% to purchase a new machine that makes money, keeping your own money to invest and making 10-50% gains, "payment books" look pretty good.

 

[MoKelly]

Back in “the day”, big companies provided BOTH defined benefit pension plans and 401-k’s with matches.

No longer.

Glad I worked back in the day.

MoKelly

 

[MoKelly]

In 2020, the S&P 500 increased 18%.

My son has a 401-k and his employer matches 66.666% (2/3rds).

So, money he got in 2019 was-

$10,000 contributed

$6666 company match

$16666 contributed by end of 2019

18% S&P return in 2020 equal $3000

$19666 at end of 2020

Not bad for his initial $10000 contribution.

MoKelly

 

[NorTracNY]

Back in “the day”, big companies provided BOTH defined benefit pension plans and 401-k’s with matches.

No longer.

Glad I worked back in the day.

MoKelly

There are still a few left. I'm fortunate to work for one. The sad part is that they reduced their 401K funds so there are only 3 funds in it. bond/US/international. They claim that it was done because the employees were too dumb to figure out which funds to invest in and they stayed out of investing because of it. It upset a lot of employees and a lot of money was transferred out of the company's 401K into personal IRAs.

 

[LD1]

You can make alot of money or loose alot of money in the market. Its all in how you invest....and not really something for beginners.

401k's are mostly mutual funds. So if only investing in a few....you automatically have diversity. Where the stellar performers balance out the less than stellar performers.....and usually averages to a nice return.

EVERYONE should contribute to a 401k IF the company has a match. And you should contribute enough of your own money to get the full match....(usually 6%). Thats free money. Take all of it you can get.

Good Idea to split between both traditional and roth as well. Have to pay taxes on both.......its just a matter of "when". Roth contributions come out of your "net". Meaning you have already paid taxes on the money you put in there. Traditional are pre-tax. Meaning you havent paid tax on it yet. SO you can choose to pay tax before you invest.....or when you withdraw. The gamble as it has always been......what is the tax rate now. And do you think it will be higher or lower than when you want to withdraw. If you think taxes will be lower when you want to withdraw....go with a traditional. IF you think taxes are going to go up.....pay them now while they are low and go with roth. Most people I know do both....

 

[Hay Dude]

You can make alot of money or loose alot of money in the market. Its all in how you invest....and not really something for beginners.

401k's are mostly mutual funds. So if only investing in a few....you automatically have diversity. Where the stellar performers balance out the less than stellar performers.....and usually averages to a nice return.

EVERYONE should contribute to a 401k IF the company has a match. And you should contribute enough of your own money to get the full match....(usually 6%). Thats free money. Take all of it you can get.

Good Idea to split between both traditional and roth as well. Have to pay taxes on both.......its just a matter of "when". Roth contributions come out of your "net". Meaning you have already paid taxes on the money you put in there. Traditional are pre-tax. Meaning you havent paid tax on it yet. SO you can choose to pay tax before you invest.....or when you withdraw. The gamble as it has always been......what is the tax rate now. And do you think it will be higher or lower than when you want to withdraw. If you think taxes will be lower when you want to withdraw....go with a traditional. IF you think taxes are going to go up.....pay them now while they are low and go with roth. Most people I know do both....

I think I will go with the Roth lol

 

[MoKelly]

There are still a few left. I'm fortunate to work for one. The sad part is that they reduced their 401K funds so there are only 3 funds in it. bond/US/international. They claim that it was done because the employees were too dumb to figure out which funds to invest in and they stayed out of investing because of it. It upset a lot of employees and a lot of money was transferred out of the company's 401K into personal IRAs.

Well - I guess that’s not the worst that can happen. At least now you have unlimited investment options.

MoKelly

 

[MoKelly]

I think I will go with the Roth lol

Yep!

Conventional wisdom was you’d be in a lower tax bracket once retired v. when working. So, traditional IRA/401-k made sense.

Not anymore. Especially now.

MoKelly

 

[Lineman North Florida]

I have a 457 IRA plan and a Roth, the only problem with the Roth is you can only contribute $6k a year unless you are over 50 years old, I guess they don't want you to be able to earn to much interest that you don't have to to pay taxes on.

 

[MoKelly]

I have a 457 IRA plan and a Roth, the only problem with the Roth is you can only contribute $6k a year unless you are over 50 years old, I guess they don't want you to be able to earn to much interest that you don't have to to pay taxes on.

The limits were meant to prevent highly compensated folks from getting too much of an advantage v regular folks.

It was a political compromise to get the laws passed.

MoKelly

 

[fruitcakesa]

Having been self employed for most of our work lives, my wife and I have both traditional and Roth IRA's.
Now that we are retired our income has dropped precipitously so the bulk of the funds are in the trad. And they are also split between professionally managed index funds and self managed dividend stock trading.
All lost 40 to 50% value by March 2020 but have completely recovered plus 5-10% increase since.
Long term who knows how things will be, but in the meantime, like they say, make hay while the sun shines.

 

[Richard]

Couple comments but first a disclosure that I admit to being partial towards the Roth account.

I'll tell a story to someone starting a 401K account:

1. Pretend you're a farmer and today is the day to buy the seed for your land.
2. You can buy your seed one of two ways
3. You buy it out of my RIGHT hand, you will pay for the SEED, you will pay NO sales tax....you instead will pay tax on the harvest.
4. You can instead buy your seed from my LEFT hand. You will pay for the seed, you DO pay sales tax and now, your harvest is TAX FREE.

Which farmer would you rather be?

I'd dare say that of the (hundreds) of people that have heard that.... invariably 99.9% of them choose the tax free harvest which is how the Roth works. Or look at it this way.....you put in $100 today and do your best to grow it to $1,000 when you retire. Would you rather pay the tax on the $100 or the $1,000?

Highly compensated people "can't" do a Roth IRA = NOT necessarily true. They can do what is called a "Back Door Roth" Google can be your friend (though I admit I didn't google it to see what pops up)

It's moronic that the govt makes people do these gymnastics to get this done.

Obligatory Disclaimer: One should always discuss with their CPA or other tax advisor

 

[MoKelly]

Long term who knows how things will be, but in the meantime, like they say, make hay while the sun shines.

I had a boss who always said “make hay while it’s hay making time”.

MoKelly

 

[Larry Caldwell]

I've been retired for 7 years, and have my savings in pretty conservative pockets. My 457 is in a guaranteed 4% fixed account, and I have about the same amount in unsheltered growth and income funds that send me a check every month. I don't really need the money, and took advantage of the RMD holiday last year. It was going to fund a trip to New Zealand, but Covid happened and they weren't letting Americans in. Sitting at home is real cheap.

When I was still working I chased some big returns. Thanks to the 2008 recession I tripled my 457 in only 3 years. I saw the recession coming and had moved to cash, only to have the financial collapse dump on top of it. Can you say, "buyer's market?"

I doubt we will see a market collapse like that this time. There is too much free money in the system. Instead, I expect a return to galloping inflation, which we have already seen everywhere but consumer goods. The big runup in real estate and stocks is double digit asset inflation. I already started a thread on that, so won't repeat myself here.

 

[TheMan419]

The biggest thing we could teach any young person is compound interest. If you start investing in your IRA or Roth IRA when you get that first job you will retire young and rich. Time is on your side. Just a couple thousand a year starting when you are 18 would do wonders for an early retirement.

 

[fried1765]

Wife and daughter got their quarterly papers for their 401Ks last week. Both made a return of 76.8%. I had split both their investments between two funds. They are both Kentucky teachers. I couldn't believe it so I went back and looked at their charts and sure enough the market, and their funds, dropped quite a bit last April. The real rate of return if the market hadn't dropped so much last year would have been closer to 40-50%. That is still fantastic.

I have a prepared speech that I give to all young-uns about this wonderful, great, program. Talk to your kids and if a fund is available at their workplace that has any type of matching they can guarantee themselves an early, very comfortable retirement by investing. Even if no matching funds are available they can lessen their tax burden and save for their future.

Unless the government changes the laws. Getting close to politics here so I will end my post.

RSKY

The key question here: "Unless the government changes the laws"!