To me the reason the mutual fund was developed was to 'sucker' in money from the uninitiated. It is purported to be safe but man what a ride. To me it is like having the fox mind the henhouse.
While I agree with your points, what happens if the market doesn't keep its pace?
Not that it won't, but remember almost 40 years ago the 401k was initiated and I think it can be used as the reason the market has continued to grow in this country over that time. I believe over the next thirty years as these babyboomers begin to make withdrawals to support their retirement, it could lead to a decline. On every prospectus I have seen is the disclaimer "past performance this no guarantee of future gains" or something like that.
I do put money into my companies 401k to get the match and I also buy their discounted stock that they offer. I'm just trying to figure out a way to avoid the forced rollercoaster ride that an IRA, 401k, SEP, 403b as well as other retirement plans forces. Theirs very limited escape routes once you jump on and get belted in.
I hear ya. Your concers are no different then many of my friends concerns. And they are valid concers and the points you make are a valid points as well.
Long term investments (457, 401k, etc..) are not designed to make a quick buck. There is no way to avoid the roller coaster ride. That is what the market does. Goes up, goes down. But when the ride is over you are up more then you are down.
In the end you will simply end up with a lot more then you started with. Will there be times when it seems like your throwing your money away? For sure. Those times would be now. The market went up 400+ points today tho. It will do that more often then it will loose 400+ points. That's the only thing that really matters when your talking about retirement accounts.
Also the money you invest is tax deductable either way and lowers your AI when doing your taxes year after year. Say you earn a $1000.00 more each year because you have now lowered ur AI by $15,500 and are now in a lower tax bracket. Investing that $1000.00 alone each year for (30) years adds up more then $100k. So at $15,500 for (30) years your at $1.2 million from the 401k alone. The other $1k each year could go to a Roth or something similar.
Investing week after week, year after year is also about putting money in a place other then the gutter considering all the toys you never needed. A large percentage of the money you will have in the end is the money you put into it.
Even if your money had a 0.00% increase in return you would still have $465,000.00 after (30) years if you maxed out your 401k. Again, at 8% you have 1.2 million.
In the end that is what means anything. Over time, a very long time. Start saving at age (25) and retire at (55). That's the norm for a lot of people. But considering the avg. age for retirement is (65) now that also means that people are living longer and therefore investing longer.
It's not what the market did today, tomorrow or yesterday. Even modest increases in your return will still yield you enough money to retire on. So even if you think the babyboomers will affect the market do you think it will affect it to only offer a 5% annual return on your investment? That is highly unlikely. At 5% your still over $800k tho.
Everyone does well when we are in a bull market. And everyone wants to invest more when the market is booming. Nothing wrong with that as long as you are investing for the long term and not short term. When the market is a bear maket and suffering that is the true test of how solid your investment is. As you get older it is aways an option to place part of your money in a U.S. Treasury bond or something similar. Very secure.
Tech stock as we know tanked 4-5 years ago. There was great yield with tech stocks but there was great loss that came with it. That risk is something one could choose to do when he is young. But at (55) thats not such a good idea because you can't recupe in time.
Is there any guarentee that what you are invested in will tank and never return? Of course there is always that risk. It's all about lowering that risk and realizing that even the best traders and investors can't outsmart the market.
I attempted to sway a few of my co-workers away from those tech stocks that were investing in cutting edge stuff. It was risky. No doubt. When your in a fund that is pulling 30% you never think it will tank. Those are some of the risks that people took. knowing when to exit is critical. Greed can make people rich or cause them to go belly up.
Some retire at (30) because they got lucky and invested wisely. Not because they were brillant investors. Don't get me wrong I have quite a few friends that are traders and make a crapload of money and are very smart. Few of them have invested in a 401k tho. It's not how much you make it's how much you don't thro away. But for the average person who is investing week after week for retirement the risk is actually quite low and the reward is usually quite high. Decade to decade means a lot more then year to year when looking at what the market is doing.
