Comments on: … 7million7years doesn't even know how much is in his Retirement Accounts!

By: Will you ever put a penny in your 401k again? « How to Make 7 Million in 7 Years™

Fri, 23 May 2008 08:39:17 +0000

[...] candid admission; as expected, I copped a little flak – after all, I admitted to the world that I don’t even know how much is in my own Retirement Accounts Whoo [...]

By: AJC

AJC — Thu, 17 Apr 2008 19:21:50 +0000

@ Josh – Thanks for that ‘vote of confidence’ … marching to the beat of my own drum is one thing … but, when I write, it’s obvious that I’m sometimes swimming with – but usually swimming against – the Personal Finance ’stream’. We’re all salmon here!

By: Joshua H.

Joshua H. — Thu, 17 Apr 2008 19:02:27 +0000

controversial? This article was absolutely controversial and thats why I come here.

if you want extradinary results you need to make controversial moves, a.k.a “taking risk”.

By: AJC

AJC — Thu, 17 Apr 2008 18:21:36 +0000

@ Alex – it’s common-sense (not financial advice) to join the 401k UP TO the full company match … whatever they give you is like a ‘free’ 1st year ‘boost’ to your return. What people don’t tend to factor in, is that you then have to average that over the life of the 401k; over the long run the ‘return’ may tend to cr*p, compared to what you can get elsewhere.

I think I need to analyse your “that same $30,000 can be used as a down payment for a rental property that will both appreciate and generate cash flow” suggestion and post on this.

By: Alex Le

Alex Le — Thu, 17 Apr 2008 15:01:54 +0000

This strikes me, in a good way. I am about to be eligible for the 401k at my company. I was almost eligible for the enrollment period at the beginning this year but I was a few days short. This coming June I’ll be able to open up my first(!) 401k. I’m also thinking about the Roth-IRA as well and not too long ago, before I knew I would be hit hard by the tax bill, I was so contemplating on starting the Roth-IRA.

You are right, AJC, to state that

“Just remember, this blog and my advice isn’t for everyone … it’s only for those who need to become rich …”

Normal people who cannot think of anything else better (and safer) than sticking their money in the funds. But to give some credits, it actually requires a level of financial competency and some work/research to be able to do that. Most people are afraid of learning how money works and how to achieve different goals through different investment instruments. If it requires too much work then far fewer people would even start thinking about investing.

Personally, after reading your advices, I would sit down and re-evaluate my strategy: where I should allocate my money to be both safe and aggressive at the same time. By safe, I mean a strategy which guarantees the retirement money when I am 65 (don’t want to get there, but life will always be too fast). With the aggressive investment, my goal is to increase the passive income significantly. I think your advices are really geared towards “be smart and handle your investments”.

Correct me if I’m wrong, what you are really saying is: instead of saving diligently and sticking $30,000 into a fund, maybe that same $30,000 can be used as a down payment for a rental property that will both appreciate and generate cash flow. This scenario will work or not depending on the evaluation of the situation, but ultimately: the goal is to maximize the return of investments. The safe way of 401k will not always be the wisest choice when I am young and can tolerate more risks. And since I can tolerate more risks, I can also use leverage to boost the return rate (e.g. getting equity out of the house and go for the 2nd one, etc.)

For sure I’ll have a different mentality when it comes this June for the company 401k.

By: AJC

AJC — Thu, 17 Apr 2008 14:38:54 +0000

@ Fiscal – spot on … thanks for the real-life example!

By: Fiscal Musings

Fiscal Musings — Thu, 17 Apr 2008 14:37:02 +0000

I do the 401K for the match since it’s an instant (aka vested) 75% return. I have also set up a Roth IRA with Scottrade which is where I purchase individual stocks. I dig the Roth since the income/dividends aren’t taxed and I can pull out my contributions at anytime if something more lucrative comes up.

That’s the extent of my retirement account usage. Real estate and other things are much more interesting than plowing more into a tax deferred long-term savings/investment plan.

By: AJC

AJC — Thu, 17 Apr 2008 13:15:33 +0000

@ Moom – Thanks! Of course, in Australia you have no choice, and the employer is LEGALLY BOUND to put something approaching 15% of your GROSS into your version of a 401k (called Superannuation) with absolutely NO contribution required from YOU, the employee …

… that’s a pretty good return. I would just be dubious about adding to it, unless, as you suggest you are getting close to retirement age.

Although, I know that the Aussie Government recently reversed a previous ruling: now you CAN borrow inside your Superannuation Account to buy, say, real-estate. So, as an investment vehicle, the Aussie system is improving …

By: moom

moom — Thu, 17 Apr 2008 13:02:54 +0000

Most PF bloggers are too much into putting money into retirement accounts. The key problem for me is the money is locked up for a long time. In the US penalties apply for taking it out early, in Australia it is pretty much impossible till age 55 and basically you need to wait till 60. The advantage of Roth IRAs are that contributions come out again with no penalty and there are some nice homebuying features. It makes sense of course to meet any match. It also can make sense to add a lot more as you near age 60. In Australia you can get a lot in in your 50s and then have low to zero taxes on it going forward. But I really don’t understand people in their 20s stuffing all their savings in there just to get a “tax break”. People do lots of irrational things for tax breaks.