MONEY: 401Ks have an a few drawbacks imho

Yes, You Can Achieve Financial Independence
How Much Does the Stock Market Actually Return?
Tuesday, 16th December 2008 (by J.D.)   
This article is about Investing

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The recent market turmoil has the naybirds out in force, and they’re decrying the long-term viability of stocks. I think this is nonsense. Though I try not to be dogmatic around here, today is an exception. Today I am going to sing the praises of the stock market.

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I too recognize that the stock market is the pnly casino in town. I too would point out Japan and inflation. Both cause by the government. Like the laws of thermodynamics about entropy, you can’t win and you can’t leave the game! Only solution is work, diversify, and yell at your congress critter every chance you get! imho.

[and later]

# Ellie Says:
December 17th, 2008 at 4:11 pm

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I’m about to enter the workforce for the first time, and you bet your behind that I’m taking all the 401K match my employeer is going to throw at me (100% of the 1st one percent, 50% of the next 5%). At my age (22), the stock market isn’t even a gamble. Its a discount store with huge store-wide sales. I’m putting every extra penny in the stock market, and I know I’m going to get huge returns for this!

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# reinkefj Says:
December 17th, 2008 at 5:46 pm

@Ellie: While IN PRINCIPLE, I agree with a 22 year old going whole hog on the 401k up to the match. It’s like “free money”.

HOWEVER, I would caution some exceptions that might temper that “advice”:

(1) an Enron-like 401k where you have to take 100% company stock and your locked in for eons. There were many horror stories out of that debacle that you should study.

(2) Investment options that are horrendous. High fees. Limited choices. Private label funds. Incestuous relationship between the company and the 401k provider. I have heard many sad tales of woe where the employee lost their money and suffered from terrible ROIs.

(3) Any “fishiness” with respect to all the hands involved in the transactions. I’d be looking for SPIC or such insurance and what the LIMITS are. SIPC of 300k on a million dollar 401K ain’t good enough.

(4) Labels on choices that may or may not reflect the underlying investments. I’ve seen “fixed income” that was leveraged; small caps that had options in the portfolio; a bond fund that was leveraged and optioned.

(5) Unit trusts, annuities, insurance “products” in the “401K”. No joke, I’ve seen an annuity with its cruddy load 2% mutual funds advanced as “required” for a 401k. (I called a friend at the SEC on that one.)

In summary, there is a POLITICAL risk in 401Ks now. The congresscritters are talking about “taking” them in exchange for an “enhanced” Social Security benefit. I think this would cause blood in the streets, but never underestimate the perfidy of a politicain who thinks there is money to be “stolen”!

So, proceed, but remember the old psuedo-Russian movie proverb, “trust but verify”. So I say to you: “Trust but verify”!

The market is a crooked casino. But it’s the only game around for you.

May I also plug my formula: “Success for your generation is: (1) ruthless financial discipline — no bad debt; (2) a life long interest in learning — education — a degree — they can’t take it away from you; (3) a white collar job in order to save big bux; (4) a blue collar skill for hard times — never saw a poor plumber; (5) one or more internet based businesses — your store is always open; (6) a free time hobby that generates income; and (7) a large will-maintained network of people who can “help” you.”

Hope this helps … … everyone.

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