I’m still receiving questions and comments regarding this post: Will you ever put a penny in your 401k again?
I can see how some people couldn’t stomach the additional risk of Real Estate investing…and thus the decision to get a company match in a 401K is an easy (near automatic) choice. For me, I want to determine a return that is reasonable for each option, and then compare it to the associated risk before I make a choice.
There are two wrong ways to look at this whole question, and one right way.
First the wrong ways:
1. Shouldn’t I invest in the 401k to get the tax benefits and the employer match?
2. What do I do if the choice between the 401k and the other choices that I’ve been looking at seem close?
You see, the first question aims at maximizing company benefit, and the second aims at maximizing investment returns. These are not the same thing … and neither are they the thing!
The one and only question that you need to answer is:
3. What do I need to do in order to get to my Number?
If you don’t know your destination, any road will do …
… but, once you do have your destination clearly in mind, typically only one road (and, you may have to look hard to find it) will usually jump right out at you!
For one person it may be that the save-and-forget 401k option is right, but for another only a more active form of investment will get their to their Number.
The rule of thumb: the longer the time frame that you have available, and the smaller your Number (say $2 million in 20 years) the more likely it is that the 401k + own-your-own home + remain-dent-free strategies will work for you.
But if your Number is larger/soon (say, $5 million in 10 years) then you have to do something more or you simply won’t make it …