Thursday, November 6, 2008

That 401(k) question (again)

I almost never get tired of answering money questions from my friends or blog readers, but there's one question I get entirely too often: Should I be in my 401(k)?

I mostly get this question from people early in their careers who are 20- or 30-somethings, but it hasn't been limited to them. My answer to the question never changes, nor does the level of alarm I feel over the frequency with which I'm asked.

So when a friend in his 20s asked me yesterday if he should be contributing to his 401(k), I responded with two questions: "Are you in the business of turning down free money?" and "Do you like paying higher taxes?" If the answers to one or both of those questions is yes, then you probably shouldn't put money in your 401(k).

If the answer is no, you should be in your HR office enrolling right now.

Can somebody tell me: are 401(k)s that big a mystery? If you're reading this, are you contributing to your company-sponsored retirement plan, and why or why not?


Product Junkie Diva said...

Yes I am contributing to my 401 k because I like free money. :-) I am trying to store up as much as possible so I'm contributing the max.
Enroll in your 401k plans people.

Velvet Jones said...

chance of building wealth over the long haul. Where things get unclear for me are over fees and expense ratios. In my opinion, there needs to be some kind of regulation that makes the fees charged to any investment fund transparent. Right now, all I hear are "expense ratios" with no details on what that exactly is. More clarity dammit!

Sanglucci said...

Keith! Mah dood what's up man it's Anand, Bobby's boi... Weeelllll I'ma have to go ahead and spice up this commentary and play the devil's advocate here. So currently I'm a daytrader in the stock market and the thing I have learned over the years are pretty "left wing" you could say and tend to contradict the usual norms on saving money for retirement... No way for me to express all my thoughts so hopefully we'll get some good discussions then I can get it all out but basically; everyone is basically pre-programmed to think that the market is generally a stable environment and that over time, your assets will appreciate in value. What they don't tell you is all the manipulation that occurs in the marketplace and the things that go on behind the scenes. For example, if your portfolio was heavily invested in commodities let's say right and you experienced RIDICULOUS returns on your money only to look at it a year later and saw that you lost ALL of those gains and THEN some. That was pure speculation in the oil markets as well as several other commodities, it was hedge funds buying and buying and buying. Many of those hedge funds are now out of business because of this current market all their clients wanted at least SOME of their money back so these funds were forced to sell out of their positions causing the commodity markets to absolutely crumble. This also proves that it was all speculation in the first place and when I say speculation I mean "bullshit". My point on the commodity side is that people are generally fed a lot of "fundamental" stories of why certain industries or business will go up in value when a lot of times those "fundamentals" are bullshit. My other point to be made their is that your fund managers or your advisor will never tell you to take your profit meaning if you been making good money in a certain fund, your broker ain't gonna hit you up and tell you hey ya know what let's get out of this fund and keep some of this money you've made. I have several other examples which I'd love to talk about here if we get a good response but one thing I want to say is that there are other ways to earn the same amount if not more on your money for retirement purposes or whatever the case may be now granted those with regular dayjobs may not have the time or desire to look for those opportunities. However, being a little bit more educated on financial markets themselves and being more active with moving money around, even if it's to straight cash money, could prove extremely beneficial to the average investor...

Butterrfly said...

I think for some folk the problem is a simple lack of understanding/awareness of the value a 401K provides ... from the immediate benefit of tax liability reduction to the more blatant, yet long term free money aspect.

Mia6998 said...

I am in my 401K...for me I at one point was questioning if I should lower how much I contribute. Between what I contribute and the company match I'm basically funding my own loss.

Still haven't gotten an answer the convinces me I should stick with what I'm contributing but I'm going to...hopefully it will start to pay off 5-10 years down the road.

Vdizzle said...

I hate to say it but, I think they really are a mystery. Just like saving money is to too many black folks. You should continue to harp on this.

Also, is it good to have multiple 401(k)s if you have a decent amount of disposable income? I know someone with three. One got slaughtered, the other took a minor beating and the third is pretty ok. Did I just answer my own question?