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My problem with target date funds and other funds which include both equities and bonds in that they're not tax efficient. Right now I have my bonds and international stock index funds in my 401(k), and my total stock market funds in my taxable. If I bought a target date fund in both my my 401(k) and in my taxable account, I'd be paying more taxes on the bonds included in the taxable account's target date fund.
Of course, you have to deal with issues like only certain funds being offered in your 401(k), or that you want to max your 401(k) contributions even when they don't offer the best funds, which leaves less money to put in your more flexible taxable account. It took me a spreadsheet to figure out the optimal plan according to my asset allocation, but now it's almost on autopilot.
bingo. Roll your old 401k into an IRA and open a new 401k at your new employer.
Yup, I don't like target funds either. If you set it up for when you retire, by the time you think you will retire your fund consists of about 60% bonds and by the time you are 10 years into retirement it is around 75% bonds. I don't ever see the need to go more than 50/50, especially in an economy where bonds aren't even keeping up with inflation.
Truth be told, I also prefer a balanced fund that keeps a fairly steady allocation to stocks and bonds and changes that allocation based on relative valuations of those two asset classes over a target date fund that changes the allocation by age. I think a 65% stock 35% bond allocation (give or take 5% either way) is one you can hold for a lifetime. That said, most people do pretty well with target retirement funds....so even though I don't like them for me, personally, they are decent choices and still less volatile than an S&P 500 Index fund. Most people don't know what they're doing and most never will (as frustrating as I find that--it's just the fact of the matter), and target date retirement funds fill the void reasonably well.
I hear people say " 8% growth on 10k for 30 years is over 100k"..... dude, Do you seriously think that $100k 30 years from now is actually worth $100k today?
The fact that you stash money away and can't touch it, then when you withdraw it, you get taxed on it anyways, or you take it out early and you get penalized up the you know what. There's a risk of it plummeting in value and you lose it all. And then when you factor in the time value of money , it makes no sense to put money into the 401k. You also could be dead 30 years from now.
Why not use that money to invest in something more short term? Am I missing something here? Is everyone able to predict the future and I'm not?
$100k 30 years ago in 1984 was worth a whole lot more than $100k today, so can you imagine what $100k is worth 30 years from now in 2044, and that's IF ( a big IF) the return is 8% year over year.
I hear people say " 8% growth on 10k for 30 years is over 100k"..... dude, Do you seriously think that $100k 30 years from now is actually worth $100k today?
The fact that you stash money away and can't touch it, then when you withdraw it, you get taxed on it anyways, or you take it out early and you get penalized up the you know what. There's a risk of it plummeting in value and you lose it all. And then when you factor in the time value of money , it makes no sense to put money into the 401k. You also could be dead 30 years from now.
Why not use that money to invest in something more short term? Am I missing something here? Is everyone able to predict the future and I'm not?
$100k 30 years ago in 1984 was worth a whole lot more than $100k today, so can you imagine what $100k is worth 30 years from now in 2044, and that's IF ( a big IF) the return is 8% year over year.
If you invested $100,000.00 in 1984,
it would be worth $2,212,834.17 in 2013.*
*Calculator assumes dividends are invested back into your portfolio. Market value excludes inflation, taxes and/or investment costs. Calculator based on the S&P Composite Stock Price Index compiled by Yale economist Robert Shiller.
I'm going to respectfully disagree.
This 401K money should never be view as "accessible funds". If you have pension...you should still contribute. This is how people that never made more than $20k/yr end up as millionaires...DCA is your friend, and 401k is a way for employers to stay competitive in the marketplace.
Last edited by midwestlaxer; 09-16-2014 at 05:26 PM..
since 1987 the newsletter we follow has grown 100k to 2 million with nothing special fidelity funds and no other money added. even an s&p 500 index fund would be in the 1,6-1.8 million area.
Last edited by mathjak107; 09-17-2014 at 03:23 AM..
I hear people say " 8% growth on 10k for 30 years is over 100k"..... dude, Do you seriously think that $100k 30 years from now is actually worth $100k today?.
Um, no I don't think that. And if you had actually learned reading comprehension you would have seen that I mentioned inflation in my post.
Quote:
Originally Posted by ToraG
The fact that you stash money away and can't touch it, then when you withdraw it, you get taxed on it anyways, or you take it out early and you get penalized up the you know what. There's a risk of it plummeting in value and you lose it all. And then when you factor in the time value of money , it makes no sense to put money into the 401k. You also could be dead 30 years from now..
Typical short term orientation of most people exhibited here. Problem is, most people DO live to age 59.5 (actually you can usually take money out of 401ks without penalty starting at age 55), and most of them would be completely destitude were it not for Social Security. SS means people live out old age in poverty or semi poverty, but not starving.
I will go ahead and answer your concerns, although I suspect you will not be receptive to what I'm saying.
1. Taxation: Yes you pay taxes taking the money out, but you get a tax break putting it in. And it also compounds tax free. Sounds like a good deal to me.
2. The risk of it plummeting to zero is so low it's not woth considering. Provided YOU HAVE A BALANCED ALLOCATION OF STOCK AND BOND FUNDS. If a 65% stock and 35% bond allocation goes to zero, then it really won't matter because it means we're in the middle of World War 3.
3. Taking the money out early: A horrible idea almost all the time.
Quote:
Originally Posted by ToraG
Why not use that money to invest in something more short term? Am I missing something here? Is everyone able to predict the future and I'm not?.
Yes, you're missing a lot. People who think short term like you do almost always end up living payday to payday or worse. If they do get around to investing, their returns are usually terrible, because they jump in and out of their investments...almost always at the worst possible times.
Quote:
Originally Posted by ToraG
$100k 30 years ago in 1984 was worth a whole lot more than $100k today, so can you imagine what $100k is worth 30 years from now in 2044, and that's IF ( a big IF) the return is 8% year over year.
So what? $0 invested in 1984 is $0 today. $10K invested in a low cost balanced fund (mix of stocks & bonds) like Vanguard Wellington on 1/1/1984 would now be worth $241,557 today. Not bad.
See myticaltiger, that thinking is flawed. I see people that buy houses on loan for 30 years, yet they still put money into 401k. A house they buy for $200k ends up costing them $500k in total after the 30 years are paid off.
WHY? The interest of your home mortgage offsets any gains. Why not use that money to pay off mortgage or other bills. Very few people have zero debt that they don't pay on a monthly basis ( auto, home, student loans, etc.). And as far as your comment about losing money in 401k..... there is always a chance of losing a huge chunk depending on the stock market.
Also, you dont know me so why would you say I live paycheck to paycheck? or that i think short term?
To me, it only make sense to invest in 401k if you are entirely debt free and you have nothing else to spend the money on.
I will stick to my belief on time value of money : $1 today is worth a lot more than $1 tomorrow.
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