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I love 401ks
- Thread starter GasX
- Start date
IHateMyJob2004
Lifer
Depending on yuour age and investment strategy and your company's performance, the idea that a 401K IS the way to go isn't so stragiht forward.
I'm not using mine till age 35+. Just doesn't make sense financially even though I get a 1:1 match. And when I ssay it doesn't make sense, I am referring to this fro ma retirment standpoint. Part of hte logic involves the fact that I am retiring WAY before the age of 55. I know others that have done my plan and they think IRAs and 401Ks are actualyl a total waste of time. They just increase the amount of money that is "tied up" until you retire, making you less likely to retire early. They admit that they will get a nice "increase" in pay when the 401Ks and IRAs kick in down the road though and have no regrets about it but if they could do it all over again, they wouldn't bother.
Depends on one's invvestment strategy though....
KillyKillall
Diamond Member
I'm assuming it will take you longer to retire since you hate your job. Probably results in more firings.
richardycc
Diamond Member
I'd LOVE to hear about your investment strategy. A spell checker is a good start.
IHateMyJob2004
Lifer
Nope, the fact that I hate my job, just motivates me more outside of work and in the due diligence required in investing.
Right now I make about 10% of my actual income (cash) via investing. That's all re-invested along with some of my "job income".
My trade is engineering. My business is investing.
Ther is irony though. My Roth-IRA is more conservative and income oriented. It is doing way better than my standard account.
Id bet all my savings you won't retire before 55.
shiner
Lifer
I max mine out every year and have been since 1998. So far so good...avoided losing much by moving my $ into bonds and some money market funds before the economy tanked. Move it around a few month ago and put a majority of my $ into precious metals & minerals....that is paying off BIG time......
IHateMyJob2004
Lifer
My company does in fact do about 13% (including dividends) annually. That's the history anyways. They do a match.
But hte problem is that it's not that hard to do about 17%, 18% after taxes i na normal account.
The thing is this:
$20,000 compunded at 13% will underperform $10,000 at 17% over the long term. I did the math a while ago. The break even for me is at about the age of 35.
At the same time, I am diversified. If my company were to go under(very unlikely), so does my 401K.
blahblah99
Platinum Member
Although I'm investing in 401k, I think is a load of crap. The only compelling reason to invest in 401k is the employee "match". If it weren't for that, I'd be dumping my 401k contributions into an indexed fund instead, and that allows me to use as leverage in buying power for a home.
IHateMyJob2004
Lifer
1) Invest in stocks that have a yield. Shoot for 2%-3% on average.
2) Investi n stocks that historically performed at 13% annaully or better. Not as hard as it sounds to be honest. That's what the S&P mid-caps have done historically, while hte S&P 500 has done 10.5% annaully. Of course, this is all past performance, even though I look at the future too.
3) Covered calls and naked puts bring in about 8% annually. Fairly low risk if you simply do out of the money options.
So 13% from share price appreciation. About 10% from dividends and options. That's about 7% after taxes. That's about 20% annaully.
Of course, the key is stock picking. Picking boring stocks is the way I do it. Banks are a great place to look. WM is a nice example. Tech is also good in some cases. Msot tech is in fact crap, but some companies like LLTC which I own are gems. I don't own MXIM, but that's another gem.
---------
I do have a Roth-IRA, but I am debating whether or not to fund it any more. Just going after high yielding stocks in there is all I really do. Tax free dividends and it's sort of a diversified backup in the event I do have to wait till 55 to retire.
does your company 401k have no options? typically you put in your cash, they match, then you get to choose out of the choices they offer what to invest in. you still cant beat the fact that if you put in say 10k annually into your 401k and they match you that 10k, you've gotten 20k to invest with. As opposed to not doing so and having only 10k to invest with. there is the fact that you have to wait before you can take the money out but you have options. you can borrow your 401k and repay it for a house for example. and how are you getting 17-18% in a normal account? if you could consistantely do that, what the hell are you doing in the job you're doing? you should be rivalling warren buffet if you can average 18% a year, every year? if you dont mind, i'd like to see the math behind all of this, as well as the stocks you're investing that are getting a 17% increase per year.
DaveSimmons
Elite Member
Huh? Only if it's all invested in company stock like the idiot workers at Enron did. Most plans have always offered some investment choices, and aren't they now required to offer more than just company stock?
401k funds are not part of the normal assests of a company, and in fact are often (always? never checked) held by a different company like Fidelity, so they would not be lost in a bankruptcy.
Also, with a 1:1 match, you could come out way ahead by cashing out when you change jobs even after taxes and penalties, giving you more cash right away for your high-risk investing that's worked for you so far.
Not that I recommend cashing out for anyone else -- most people playing the odds like you're doing eventually guess wrong and lose big.
IHateMyJob2004
Lifer
I know several people that have done/are doing what I am doing. Can't really prove it though. This is the internet after all. I know one guy that is set to retire in about 2 years. About 30 right now.
All it takes is not wasting your money and using your income from you trade as seed money.
blahblah99
Platinum Member
Yes you can, but there's interest.
IHateMyJob2004
Lifer
You can. I can do it as a "hardship loan" or to pay for schooling. Things that are truely needed. You can't pay for a car though.
I think it is treated as interest free though. There is one pitfall. When you repay the borrowed money, you are using after tax money to repay the debt which will be taxed again when you take it out when you retire double taxation. I'm assuming it's treated as taxable income when it is initially borrowed also. Not sure of all the details as I have never had a reason to research it.
IHateMyJob2004
Lifer
At my employer, it's a limited subset of funds, the best of whcih has a historical return of 7%.
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