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I support the idea of paying off debt. 401k (investment groups) however, is essentially giving your money to a gambler, and having him play your hand. Bet on yo

I support the idea of paying off debt. 401k (investment groups) however, is essentially giving your money to a gambler, and having him play your hand. Bet on yourself. Always.

hartleybrody 14y ago
Betting on yourself isn't always the safest. But I'd be curious to know what you meant by betting on yourself. Like investing part of your savings into a side project?
saryant 14y ago
In regards to the 401k, I disagree. Unless your employer only offers really crappy funds it's in no way gambling. First off, your employer match is essentially free money. It's foolish to ignore that. The tax benefits can also be significant. For instance, I contribute 25% of my pre-tax salary to my 401k. That works out to $1500 a month but because my taxable income is lowered my monthly net is only decreased by about $950. That's $550 a month into savings that I wouldn't have previously had due to taxes. If you follow the investing philosophy of John C. Bogle, founder of Vanguard, you'll likely do just fine. Assuming you're young, you just split your 401k between four index funds: total bond market, total domestic stock market, total international stock market and real estate investment trusts (REITs). I do 20/45/25/10. Yes, in the short term you might take a big hit but in the long term (>20 years) this is historically shown to perform very well. As you get closer to retirement you increase the proportion of your portfolio in bonds so as to lower your risk.
- jrockway 14y ago
  Indeed. With a historical performance of 9% a year returns and a 100% employer match, you'd have to be pretty pessimistic about the future of the economy to not have a 401k. (Though one could argue that taxes will be higher in the future, and so paying taxes now might be better than paying taxes when you take the distribution.) You don't even have to manage the split yourself, there are plenty of mutual funds that target certain retirement year changes and rebalance the portfolio as appropriate (basically: less risky investments as your retirement date nears). There are fees for this, of course, but for my fund they amount to $90 per 10 years per $10,000 invested. I think that's worth it if you don't want to actively manage your retirement portfolio.
  - phil 14y ago
    You still have to be pretty pessimistic to think taxes will rise faster than your rate of return!
    - jwatte 14y ago
      The point of 401k is that you compound the growth on the deferred tax money, and then pay much less /present value/ tax once you retire. Index funds and high yield bond funds give you low overhead with almost no "gambling" element. Drawbacks: Limited maximum contribution, very long deferred gratification, vulnerable to future policy changes.
      - saryant 14y ago
        Exactly. I keep all of my 401k in index funds, same with my Roth IRA. I have other non-tax-advantaged accounts I use to investing in individual stocks.
wikwocket 14y ago
If your employer matches, you are literally earning 100% on your investment immediately. Few other investments can promise the hope of that, let a lone deliver. If your employer doesn't match, then it can be a bit of a gamble. But you have the option to buy the market (index funds, etc) instead of a particular stock/fund, so you can bet on the entire economy. And remember that both cases use pre-tax dollars, costing you less for the same investment amount.
jfolkins 14y ago
Folks, This is long, so I apologize in advance, bare with me. A 401k is NOT a safe investment. People constantly mistake prior history to future events yet there is no causality here. In fact, with QE3 in the wild, the value of your employer matched dollar continues to degrade. http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm http://www.federalreserve.gov/newsevents/press/monetary/2012... The question I ask myself is "What will my dollars be worth at the age of retirement?" and the scenarios I paint continually are ones where I do not like the outcome, should I continue down a traditional 401k path. @Saryant and @wikwocket's advice is reasonable, if the current model is sustainable. I have personally decided that it is not. This is just me. No hard feelings guys/gals. I just don't trust someone who manages my account making a gain in the good times, but suffering no losses in the bad times. @hartleybrody I really really love practical advice. And so you are in luck, because I have a practical "betting on myself" story. When I moved to Bend, Oregon it was 2005, I was 24, and it was shortly after my brother had passed away. I was pretty emotional and wasn't in a rational state at the time. So when friends, family, every-freakin-person was saying the following mantra. "Buy now or be priced out forever" And with this chant ringing in my ears, I went to a mortgage broker. This broker proceeded to approve me for up to 415k dollar loan, in Central Oregon, with my wage of 45k annually. (If you have been following the mortgage crisis this isn't the worst atrocity) And sitting there with my young wife, wanting something solid to cling to, a small mechanism clicked in my brain, despite the emotion. It didn't feel right. So we walked away. I said to my wife "I'll perform some research and we'll come back." And so what did I do? I did what any solid nerd would do and went out to gather data. How? I learned all about scraping (screen scraping, web crawling, etc) from my new buddy Matthew Turland (plug his book not mine, which had not been written at the time but I'd like to think my quesitons helpd him realize his expertise. Yes it's all about me ;-) http://www.phparch.com/books/phparchitects-guide-to-web-scraping-with-php/ http://www.phparch.com/books/phparchitects-guide-to-web-scra...) Using this knowledge I scraped and regexed the county records (http://www.deschutes.org/Assessors-Office/DIAL-Search-Form.aspx http://www.deschutes.org/Assessors-Office/DIAL-Search-Form.a...) and do you know what I learned? I saw that on average the annual increase in real estate prices in Central Oregon hovered around 3%. Yet by the time 2005 rolled around, 50% YoY increases were the norm. "Whoa" I thought channeling a Matrix style Keanu. "This is Not sustainable" And so this is the beginning of "betting on myself". By analyzing the data, I knew that this growth was not going to last, so I convinced my wife (bless her for trusting me) that housing was a malinvestment, even though ALL our friends were arguing our stupidity. It was almost like the biblical story of Noah, where everyone thinks you are crazy for saying a flood is coming. With everyone thinking you are crazy, you eventually just shut up. Then the RE market stalled. This were slowing down, but no one was putting it together. Then Lehman Brothers Crashed. And the World was like "WTF Lehman? Alright this sucks but the losses are limited." Then the market frickin crashed. By March of 2009 it was beyond ugly. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1349467200000&chddm=746851&chls=IntervalBasedLine&q=INDEXDJX:.DJI&ntsp=0&ei=tnJ2UJDlIuOOiAL7wgE http://www.google.com/finance?chdnp=1&chdd=1&chds=1&... And here is where I bet on myself again. I poured half our savings into GOLD. OMG! OMG!! OMG!!! This really is gambling. But the data and the research I had, helped me see that there was this crazy opportunity. Buying into everyone's fear. One thing I'd like to point out, is that I consulted with my wife. I told her my thesis and she concluded. "Well you were right about housing, I'm going to trust you. If we lose the money, we will move on." The last bit was really important. I only risked what WE were willing to lose. Ok. Where was I? Oh yeah... So I buy gold, then I start tracking foreclosures. But I get really bored of tracking them by hand. So I write this sweet bot that scrapes the county records and converts the PDF documents to readable text using tesseract (<== so much badassness, I love tesseract) https://github.com/jfolkins/Deschutes https://github.com/jfolkins/Deschutes (<== teh codez) Finally, last year, I reasoned that it was decent enough time to buy (Rent VS Buy argument and data to support it given our local environment) and cashed out our gold and bought RE. Soooooooo.... Quite the rant, I realize. But hopefully it articulates the "betting on oneself" philosophy that I've taken. It may not pan out, I'm ok with that. I like my odds better than the 401k folks. One thing that sets me apart is that I've learned a crap pile about a ton of different topics I never knew anything about. (Scraping, Economics, etc) and am leveraging what I consider expertise into hopefully long term gains. Take care -jared (This is not investment advice. blah blah blah)
SomeCallMeTim 14y ago
Betting on yourself is ALSO a gamble. Not because of any trait of any particular person, but because things fail sometimes. IMO, the best approach is to spread your bets. Obviously getting rid of debt is the easiest first step, and 401k plans are less-than-ideal because of the restricted investment options, but you can minimize the gambler's influence by choosing index funds (if you have the option). The stock market itself is a gamble, of course, but so is just about everything else, so minimizing your exposure to any one risk is the best you can do. I've been in dividend stocks for years and making $500/month or so with minimal exposure.

I support the idea of paying off debt. 401k (investment groups) however, is essentially giving your money to a gambler, and having him play your hand. Bet on yourself. Always.

hartleybrody 14y ago

Betting on yourself isn't always the safest. But I'd be curious to know what you meant by betting on yourself. Like investing part of your savings into a side project?

saryant 14y ago

In regards to the 401k, I disagree. Unless your employer only offers really crappy funds it's in no way gambling. First off, your employer match is essentially free money. It's foolish to ignore that. The tax benefits can also be significant. For instance, I contribute 25% of my pre-tax salary to my 401k. That works out to $1500 a month but because my taxable income is lowered my monthly net is only decreased by about $950. That's $550 a month into savings that I wouldn't have previously had due to taxes. If you follow the investing philosophy of John C. Bogle, founder of Vanguard, you'll likely do just fine. Assuming you're young, you just split your 401k between four index funds: total bond market, total domestic stock market, total international stock market and real estate investment trusts (REITs). I do 20/45/25/10. Yes, in the short term you might take a big hit but in the long term (>20 years) this is historically shown to perform very well. As you get closer to retirement you increase the proportion of your portfolio in bonds so as to lower your risk.

jrockway 14y ago
Indeed. With a historical performance of 9% a year returns and a 100% employer match, you'd have to be pretty pessimistic about the future of the economy to not have a 401k. (Though one could argue that taxes will be higher in the future, and so paying taxes now might be better than paying taxes when you take the distribution.) You don't even have to manage the split yourself, there are plenty of mutual funds that target certain retirement year changes and rebalance the portfolio as appropriate (basically: less risky investments as your retirement date nears). There are fees for this, of course, but for my fund they amount to $90 per 10 years per $10,000 invested. I think that's worth it if you don't want to actively manage your retirement portfolio.
- phil 14y ago
  You still have to be pretty pessimistic to think taxes will rise faster than your rate of return!
  - jwatte 14y ago
    The point of 401k is that you compound the growth on the deferred tax money, and then pay much less /present value/ tax once you retire. Index funds and high yield bond funds give you low overhead with almost no "gambling" element. Drawbacks: Limited maximum contribution, very long deferred gratification, vulnerable to future policy changes.
    - saryant 14y ago
      Exactly. I keep all of my 401k in index funds, same with my Roth IRA. I have other non-tax-advantaged accounts I use to investing in individual stocks.

wikwocket 14y ago

If your employer matches, you are literally earning 100% on your investment immediately. Few other investments can promise the hope of that, let a lone deliver. If your employer doesn't match, then it can be a bit of a gamble. But you have the option to buy the market (index funds, etc) instead of a particular stock/fund, so you can bet on the entire economy. And remember that both cases use pre-tax dollars, costing you less for the same investment amount.

jfolkins 14y ago

Folks, This is long, so I apologize in advance, bare with me. A 401k is NOT a safe investment. People constantly mistake prior history to future events yet there is no causality here. In fact, with QE3 in the wild, the value of your employer matched dollar continues to degrade. http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm http://www.federalreserve.gov/newsevents/press/monetary/2012... The question I ask myself is "What will my dollars be worth at the age of retirement?" and the scenarios I paint continually are ones where I do not like the outcome, should I continue down a traditional 401k path. @Saryant and @wikwocket's advice is reasonable, if the current model is sustainable. I have personally decided that it is not. This is just me. No hard feelings guys/gals. I just don't trust someone who manages my account making a gain in the good times, but suffering no losses in the bad times. @hartleybrody I really really love practical advice. And so you are in luck, because I have a practical "betting on myself" story. When I moved to Bend, Oregon it was 2005, I was 24, and it was shortly after my brother had passed away. I was pretty emotional and wasn't in a rational state at the time. So when friends, family, every-freakin-person was saying the following mantra. "Buy now or be priced out forever" And with this chant ringing in my ears, I went to a mortgage broker. This broker proceeded to approve me for up to 415k dollar loan, in Central Oregon, with my wage of 45k annually. (If you have been following the mortgage crisis this isn't the worst atrocity) And sitting there with my young wife, wanting something solid to cling to, a small mechanism clicked in my brain, despite the emotion. It didn't feel right. So we walked away. I said to my wife "I'll perform some research and we'll come back." And so what did I do? I did what any solid nerd would do and went out to gather data. How? I learned all about scraping (screen scraping, web crawling, etc) from my new buddy Matthew Turland (plug his book not mine, which had not been written at the time but I'd like to think my quesitons helpd him realize his expertise. Yes it's all about me ;-) http://www.phparch.com/books/phparchitects-guide-to-web-scraping-with-php/ http://www.phparch.com/books/phparchitects-guide-to-web-scra...) Using this knowledge I scraped and regexed the county records (http://www.deschutes.org/Assessors-Office/DIAL-Search-Form.aspx http://www.deschutes.org/Assessors-Office/DIAL-Search-Form.a...) and do you know what I learned? I saw that on average the annual increase in real estate prices in Central Oregon hovered around 3%. Yet by the time 2005 rolled around, 50% YoY increases were the norm. "Whoa" I thought channeling a Matrix style Keanu. "This is Not sustainable" And so this is the beginning of "betting on myself". By analyzing the data, I knew that this growth was not going to last, so I convinced my wife (bless her for trusting me) that housing was a malinvestment, even though ALL our friends were arguing our stupidity. It was almost like the biblical story of Noah, where everyone thinks you are crazy for saying a flood is coming. With everyone thinking you are crazy, you eventually just shut up. Then the RE market stalled. This were slowing down, but no one was putting it together. Then Lehman Brothers Crashed. And the World was like "WTF Lehman? Alright this sucks but the losses are limited." Then the market frickin crashed. By March of 2009 it was beyond ugly. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1349467200000&chddm=746851&chls=IntervalBasedLine&q=INDEXDJX:.DJI&ntsp=0&ei=tnJ2UJDlIuOOiAL7wgE http://www.google.com/finance?chdnp=1&chdd=1&chds=1&... And here is where I bet on myself again. I poured half our savings into GOLD. OMG! OMG!! OMG!!! This really is gambling. But the data and the research I had, helped me see that there was this crazy opportunity. Buying into everyone's fear. One thing I'd like to point out, is that I consulted with my wife. I told her my thesis and she concluded. "Well you were right about housing, I'm going to trust you. If we lose the money, we will move on." The last bit was really important. I only risked what WE were willing to lose. Ok. Where was I? Oh yeah... So I buy gold, then I start tracking foreclosures. But I get really bored of tracking them by hand. So I write this sweet bot that scrapes the county records and converts the PDF documents to readable text using tesseract (<== so much badassness, I love tesseract) https://github.com/jfolkins/Deschutes https://github.com/jfolkins/Deschutes (<== teh codez) Finally, last year, I reasoned that it was decent enough time to buy (Rent VS Buy argument and data to support it given our local environment) and cashed out our gold and bought RE. Soooooooo.... Quite the rant, I realize. But hopefully it articulates the "betting on oneself" philosophy that I've taken. It may not pan out, I'm ok with that. I like my odds better than the 401k folks. One thing that sets me apart is that I've learned a crap pile about a ton of different topics I never knew anything about. (Scraping, Economics, etc) and am leveraging what I consider expertise into hopefully long term gains. Take care -jared (This is not investment advice. blah blah blah)

SomeCallMeTim 14y ago

Betting on yourself is ALSO a gamble. Not because of any trait of any particular person, but because things fail sometimes. IMO, the best approach is to spread your bets. Obviously getting rid of debt is the easiest first step, and 401k plans are less-than-ideal because of the restricted investment options, but you can minimize the gambler's influence by choosing index funds (if you have the option). The stock market itself is a gamble, of course, but so is just about everything else, so minimizing your exposure to any one risk is the best you can do. I've been in dividend stocks for years and making $500/month or so with minimal exposure.