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Why Your 401K is a Lousy Investment Strategy

March 20, 2018  |  3 Min. Read
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Would you invest in a strategy where you put up 100% of the capital, you take 100% of the risk, but you get only 30% of the return after fees and taxes?

It sounds crazy, doesn’t it? But if you have a 401K, that is exactly what you’re doing.

Garrett Gunderson, CEO of WealthFactory, wrote an eye-opening article for Entrepreneur entitled “13 Reasons Why Your 401K is Your Riskiest Investment.” In it, he outlines why one of today’s most popular investments don’t make sense. While I strongly encourage you to read Gunderson’s entire piece for yourself, I’d like to highlight five of what I believe are his strongest points:

  1. 401Ks are unnecessarily risky. If the market goes down, you can lose a large portion of your nest egg in a very short period; if you are saving for retirement, that downturn could hit just before you need your funds. There is a much safer place for your nest egg, where it will be protected from market lows––more on that to come.
  2. 401Ks grow in value too slowly. There are ways to grow your nest egg that aren’t just quicker: they’re safer. Of course, if your employer offers to match your 401K contribution, take that “house money,” but never contribute more than your employer matches.
  3. 401Ks are unnecessarily expensive. Take a good look at your 401K statement, and you’ll find that your broker is making more off of your money than you are. Gunderson explains why in his piece. Read his article, then consider this: there is a place to put and grow your nest egg that is safer, increases in value faster, and where you’ll pay no fees.
  4. 401Ks are tax-delayed. Deferring taxes might have made sense in 1978 when 401Ks were introduced, but today, given our national debt, does anyone really believe that taxes will not be higher in the future? There is a place to put and grow your nest egg that is safer, increases in value faster, where you’ll pay no fees, and where your money will be tax-free years from now, when you need it.
  5. 401Ks are government-owned. It may surprise you, but you don’t own your 401K. The government does, and they can change the rules associated with 401Ks at any point. Do you really want your nest egg sitting in a place where the federal government has complete control over it and could even use your nest egg to fund itself?

Again, take the time to read Gunderson’s article. I believe you’ll decide as I did some time ago that a 401K is not the investment strategy for you. Check back here next week, when I’ll describe the place for your nest egg that is safer, increases in value faster, where you’ll pay no fees, and where your money will be tax-free years from now, when you need it.

Live, happy, health, wealthy and safe.

Cort Dial is the President of Cort Dial Consulting, LLC and the author of Amazon Top 10 book, Heretecs to Heroes,  named the #1 Business Book of 2016 by Canada’s Globe and Mail. He offers business performance coaching to corporate executives and superior financial products and expert portfolio guidance to people of all income levels

P.S. Looking for an interesting podcast this week? Listen to my provocative chat with Dov Baron for his excellent Leadership and Loyalty Tips for Executives show, and as always, let me know what you think.

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