Several Startling Reasons Why A 401K May Be Your Riskiest Investment
Banking institutions have a distinct genius for marketing. They are able to get millions of Americans to give their money with incredibly little thought taken, incredibly little knowledge of the so-called investments offered, as well as less control of their investments.
It's one of the riskiest gambles for most individuals. Read the following reasons why I say this, and then ask yourself if it's time to reconsider your 401k.
1. Minimal Opportunity For Cash Flow
Qualified retirement plans, which include 401k's and IRAs, don't present immediate cash flow, which usually means that you cannot benefit from them through velocity and utilization. The theory is that letting the funds sit allows it to compound, but for most individuals this actually means that it stagnates.
A lot of people won't choose to utilize these funds even if a particularly compelling opportunity arises that can make them far more than the 401k would, even accounting for the penalties. This means that many legitimate opportunities are passed by as people stay "in it for the long haul."
Instead, use your 401k to invest in equity capital markets. Just be sure that you stay away from investing in shell companies. A shell company may come with a very long list of "clean up" problems.
2. Lack of Liquidity
The money is tied up with penalties attached for early withdrawal. Although you will find a few technicalities that allow penalty-free withdrawals, the limitations are so numerous that very few know ways to get around them.
3. Market Dependency
The performance of the funds depends on market factors that most people do not have the knowledge or the capability to understand or mitigate. This indicates that your retirement plans are based on unknowable projections, making for a dangerous and unstable planning environment.
4. The Match Myth
"Take the match. It is a guaranteed 100 a year, according to an average return of 8% annually, but that indicates that some years will probably be lower, some will be higher. If in one year your funds are down 10%, you're tapping into your principal to take your own interest withdrawal.
At that point, you've got only two choices: 1) begin withdrawing principal, or 2) leave the funds alone until your funds are up once again.
5. No Holistic Strategy
I've witnessed on many occasions, individuals whose finances are in shambles and even though they have much more pressing needs, they diligently contribute to their 401k. They've been convinced to do so, obviously, mainly because of the match, tax deferral, and so on. It is like a person attempting to take care of a scraped knee when their wrist is slit.
What they truly need is a macroeconomic approach to their finances that can help them identify, prioritize, and manage all pieces of their financial puzzle, with all pieces coordinated and even working together.
Conclusion
Qualified plans are offered on such a wide scale mainly because people promoting it have vested interests and their interests do not necessarily coincide with yours.
Several Startling Reasons Why A 401K May Be Your Riskiest Investment
Contrary to has been taught in popular financial media, 401k's and other qualified retirement plans are one of the riskiest investments for many people.
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