5 ms·

It is a huge disservice to take a cheap shot at 401ks. There is almost no case where someone who has the opportunity to contribute shouldn't do so.

parrellel 8y ago
Eh, after fees most standard 401Ks are only marginally better than a bank account at this point.
- nradov 8y ago
  Due to compound returns, a marginal advantage makes a huge difference over a 40 year career.
  - parrellel 8y ago
    You'd hope, but a number of smaller plans have that entire advantage eaten, so you end up with no growth. Getting out of a lot of 401K plans and into something like an IRA is... advisable in many cases. I'll admit that this is mostly a problem for small businesses, from what I read, and there are plenty of 401k's that aren't actively screwing people.
- sparkpy724 8y ago
  I don' think you have the slightest idea what you are talking about. Almost all my 401K funds charge less than 1% a year and if you're in mostly equities you average 10% returns per year. Most bank accounts offer less than 1% Interest rates on deposits so its really not even close.
- walshemj 8y ago
  A 401k wont be invested 100% in cash
- stale2002 8y ago
  This is not true at all. It is very easy to get some sort of vanguard s&p 500 index fund that will get you %7 return rates, with something like .1% fees.
- buttcoinslol 8y ago
  I doubt 1%+ expense ratio funds across the board is the average case, but I could be wrong. Perhaps if you let your 401k provider manage your money. In my 401k, I pay 1.5 bps/yr on 80% of my portfolio, a Fidelity S&P 500 fund (FXAIX), or $0.15 per $1,000 per year. My other two funds are a Fidelity Small-Cap and Fidelity Mid-Cap funds (FSSNX and FSMDX), I pay 2.5 bps/yr on the other 20% between these two funds, or $0.25 per $1,000 per year. If my balance was $100,000 right now, I would pay 80x0.15+20x0.25, or about $17/year for each $100k. $170 per million, and so on. These 401k mutual funds have better expense ratios than my Roth IRA holding, VTI (Total Market ETF), which is at 3 bps/yr, and the mutual fund couterpart of VTI, VTSAX is 4 bps. There is absolutely no possible way for a high-yield savings acct that yields (Fed Funds rate minus 15-25 bps) in interest (Goldman's marcus.com pays 2.23% APY, for instance, fed funds is ~2.40%) will ever approach my portfolio after 40 years of returns, barring total societal collapse.
icelancer 8y ago
There's plenty of companies that do not provide financial match to a 401k. For people making average income for a 25 year old or so, they are better off putting it in a Roth IRA then.
- bluGill 8y ago
  Invest in a Roth IRA first is good advice. However there are limits, you really should max out both in your early years. While you are at it you should max out your HSA (pay medical expenses in cash) Of course as others have pointed you are now investing $30,000 before you have paid for any other life expense.

parrellel 8y ago

Eh, after fees most standard 401Ks are only marginally better than a bank account at this point.

nradov 8y ago
Due to compound returns, a marginal advantage makes a huge difference over a 40 year career.
- parrellel 8y ago
  You'd hope, but a number of smaller plans have that entire advantage eaten, so you end up with no growth. Getting out of a lot of 401K plans and into something like an IRA is... advisable in many cases. I'll admit that this is mostly a problem for small businesses, from what I read, and there are plenty of 401k's that aren't actively screwing people.
sparkpy724 8y ago
I don' think you have the slightest idea what you are talking about. Almost all my 401K funds charge less than 1% a year and if you're in mostly equities you average 10% returns per year. Most bank accounts offer less than 1% Interest rates on deposits so its really not even close.
walshemj 8y ago
A 401k wont be invested 100% in cash
stale2002 8y ago
This is not true at all. It is very easy to get some sort of vanguard s&p 500 index fund that will get you %7 return rates, with something like .1% fees.
buttcoinslol 8y ago
I doubt 1%+ expense ratio funds across the board is the average case, but I could be wrong. Perhaps if you let your 401k provider manage your money. In my 401k, I pay 1.5 bps/yr on 80% of my portfolio, a Fidelity S&P 500 fund (FXAIX), or $0.15 per $1,000 per year. My other two funds are a Fidelity Small-Cap and Fidelity Mid-Cap funds (FSSNX and FSMDX), I pay 2.5 bps/yr on the other 20% between these two funds, or $0.25 per $1,000 per year. If my balance was $100,000 right now, I would pay 80x0.15+20x0.25, or about $17/year for each $100k. $170 per million, and so on. These 401k mutual funds have better expense ratios than my Roth IRA holding, VTI (Total Market ETF), which is at 3 bps/yr, and the mutual fund couterpart of VTI, VTSAX is 4 bps. There is absolutely no possible way for a high-yield savings acct that yields (Fed Funds rate minus 15-25 bps) in interest (Goldman's marcus.com pays 2.23% APY, for instance, fed funds is ~2.40%) will ever approach my portfolio after 40 years of returns, barring total societal collapse.

icelancer 8y ago

There's plenty of companies that do not provide financial match to a 401k. For people making average income for a 25 year old or so, they are better off putting it in a Roth IRA then.

bluGill 8y ago
Invest in a Roth IRA first is good advice. However there are limits, you really should max out both in your early years. While you are at it you should max out your HSA (pay medical expenses in cash) Of course as others have pointed you are now investing $30,000 before you have paid for any other life expense.