Financial institutions have a
distinct genius for marketing. They are able to get millions of Americans to
hand over their money with very little thought taken, very little knowledge of
the so-called investments offered, and even less control of their investments.
Startling Reasons Why Your 401(k) May Be Your Riskiest Investment
When the evidence is plainly
presented, it becomes overwhelmingly clear that putting money into 401(k)s and
similar qualified plans is not investing at all--it is one of the riskiest
gambles for most individuals. Read the following reasons why I say this, and
ask yourself if it's time to reconsider your 401(k).
1. Limited Opportunity For Cash Flow
Qualified retirement plans, such as 401(k)s and IRAs, do not provide immediate cash flow, which means that you cannot benefit from them through velocity and utilization. The theory is that letting the money sit allows it to compound, but for most people this really means that it stagnates.
Most people will not choose to utilize these funds
even when a particularly compelling opportunity arises that will make them far
more than the 401(k) would, even accounting for the penalties. This means that
numerous legitimate opportunities are passed by as people stay "in it for
the long haul."
2. Lack of Liquidity
The money is tied up with penalties
attached for early withdrawal. Although there are a few technicalities that
allow penalty-free withdrawals, the restrictions are so numerous that very few
know how to get around them.
3. Market Dependency
The performance of the funds is
dependent upon market factors that most individuals do not have the knowledge
nor the ability to understand or mitigate. This means that your retirement
plans are based on unknowable projections, making for a dangerous and uncertain
planning environment. Uncertainty causes fear, and fear leads to mistakes,
worry, scarcity, and ultimately lost hopes and dreams. Do you want to live your
ideal life only if the market cooperates?
4. The Match Myth
"Take the match--it's a
guaranteed 100 a year, based on an average return of 8 annually, but that means
that some years will be lower, some will be higher. If in one year your fund is
down 10%, you're tapping into your principal to take your interest withdrawal.
At that point, you have only two choices: 1) start withdrawing principal, or 2)
leave the money alone until your funds are up again.
14. No Holistic Plan
I've witnessed on many occasions
people whose finances are in shambles and although they have much more pressing
needs, they diligently contribute to their 401(k). They've been convinced to do
so, of course, because of the match, tax deferral, etc. It's like a person
trying to take care of a scraped knee when their wrist is slit. What they
really need is a macroeconomic approach to their finances that will help them
identify, prioritize, and manage all pieces of their financial puzzle, with all
pieces coordinated and working together.
15. Neglect of Stewardship
Ultimately, the most destructive
aspect of 401(k)s is that they cause many individuals to abdicate their
responsibility, abandon self-reliance, and neglect their stewardship over their
own prosperity. People think that if they just throw enough money at the
"experts" that somehow, some way, and without their direct
involvement they will end up thirty years later with a lot of money. And when
things don't turn out that way they think they can blame others--despite the
fact that they only have themselves to blame.
Conclusion
Qualified plans are promoted on
such a wide scale because those promoting it have vested interests--and their
interests don't necessarily coincide with yours.
If you currently contribute to a 401(k), stop and think about it for a minute. What is it really doing for you, now and in the future? The desire to save money for retirement is wise and prudent, but after reading the above, do you think it's possible to find other investment philosophies, products, and strategies that would meet your financial objectives much more quickly and safely than a qualified plan?
Are
you really comfortable exposing yourself to this much risk? How can you
mitigate your risk, increase your returns, and create safe and sustainable
investments? How can you create more control and better exit strategies, reduce
your tax burden, and increase your cash flow?
Your financial future depends on
your answers to these questions.
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