Quote:
Originally Posted by hnsq
Zip, I agree with what you are trying to say, however I don't quite think this is the case with regard to a 401K. Lets say I make $100,000/yr (for a nice, round number). Lets also say my employer will match 100% of my investment into a 401K up to 6%. If i opt to invest nothing, my paycheck (and total income) for the year is $100,000. Now lets say I choose to invest the maximum of 6% into the 401K. My paycheck for the year drops to $94,000, but I have also invested $12,000 (6% of my pay plus the amount my employer matched). This brings my gross income for the year to $106,000. This is money I make TODAY, not tomorrow. Going with this choice allows me to make $6,000/yr more than investing nothing at all. Yes, you might not be able to access this money today, but it still has present value. The future value of the present assets is positive. In your example (as quoted above), you are advising against comparing present value of present assets to future value of future assets. There is a huge difference.
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That only makes sense if a 401k is the best possible investment...which it isn't. Many investments show exponential return rates. That means that "
If I'm smart with my investments" my $1 will easily beat your $2 over time. Understand that a 1-time doubling right-now is worse than good exponential return over time.......that's just the math.
Remember, my original comment was:
...."
If you know how to invest (in your house or whatever else) $1 today is more valuable than $3 tomorrow.".....
Now, If a 401k is all that's available to you, it
could be a good idea...but "
If you know how to invest " It's not going to make sense. One investment that
could show you a higher return would be your house.
But you say, wait a minute Zip95, I just heard....
Quote:
Originally Posted by CaptainObvious
The DOW has averaged a 7% gain annually over the past 50 years. Housing prices have averaged a 4% gain annually over the past 50 years nationwide.
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To which I would reply...
That's an irrelevent statistic...unless of course you plan on buying every house in the nation....Real estate is always local!
Tell the people who brought houses in Cranberry or Robinson 10 years ago that they would only see a 4% gain...they'll laugh at you all the way to the bank.
Tell the people who brought houses in Wilkensburg or Western Penn Hills 10 years ago that they could see up to a 4% gain...they'll laugh at you all the way to the poor house.
Even a real estate statistic for only the Pittsburgh Metro would be irrelevent. You have to look at your own situation, determine your appetite for risk, and see what's available to you. Whatever you decide, you should understand that a 401k is far from the ultimate investment.