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I think paying off a mortgage is the best thing that any of us can do right now.
Depends on your interest rate and what you are saving on your taxes.
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Originally Posted by Ultrarunner
I was planning on doing just that until the recent crisis...
So if I keep the money in the bank and inflation comes along increasing interest paid to depositors... might it be better to hold-off?
My mortage is fixed at 5%
Figure that rate with what you are saving on your taxes and then decide if it is a good idea to pay it off or not. Our loan is at 5.625 but we are getting a better rate with most of our investment accounts then that now so it doesn't make sense to pay that off early. Real Estate isn't gaining any faster then anything else right now.
I come from a pretty frugal family and we always believed in saving until I moved to California. I spoke with some co-workers and they all contribute 6%, which is the max. matching limit set by our employer.
If it were up to me, I would contribute the max of 30% per pay check so I hit the $16k 2009 max. Am I missing something that would preclude people from saving and maximizing their tax benefits? Apart from them having more urgent needs (e.g. buying a car, new family) doesn't it just make sense to save and put away the max. amount of money?
Here is an excellent reason.
You believe that you have the ability to invest your money in more lucrative avenues then your companies limited 401k options, and dispite the matching portion (if your company matches), and potential tax benefits, you still feel you can beat it.
Right now, most of the people in my office have lost nearly everything they put in their 401k. In fact, one woman lost everything during the last downturn (around 2001), just built it back to 2001 levels, and lost everything again.
You believe that you have the ability to invest your money in more lucrative avenues then your companies limited 401k options, and dispite the matching portion (if your company matches), and potential tax benefits, you still feel you can beat it.
Right now, most of the people in my office have lost nearly everything they put in their 401k. In fact, one woman lost everything during the last downturn (around 2001), just built it back to 2001 levels, and lost everything again.
Yeah that, randomdude, from 2000 to 2003, I was not able, because of company dynamics, to fully invest the fed limit to my 401k, and my employer wasn't doing anything spectacular on his part, so I stopped putting $$$ into it altogether in 2003
...ironically, I instead invested the $$ into a rental investment property, and though (LOL) that has not clearly worked out as well as I had hoped, I have not (yet) come close to losing money, not making any either, but I do now have a chunk of change in unrealized passive losses to pretty much insure 3-4 years + of 25k tax exempt income per year, and in times like these, I guess I should consider myself sort of lucky...
would I have done the same, given another shot?? Yep...
I have always believed that the reason real estate is called *real* is because it, unlike stocks, can never go to zero value...it is a tangible asset..stocks are an *idea*, subject to another's speculation, dreams, greed, etc...
Before you guys flame me, keep this thought in mind....in 1991 I bought my first house...single mom...1995 met my now husband...1996...S&L crisis..WTF?? my house is worth 24% less than I paid for it ???? Well, guess we will rent it out for a year or two...fast forward 2008...sold the rental for 195 % of what I payed for it...and that was even including the price slide from 2006 CA peak to 2008 sale...
..and someone else was making the mortgage payments for me all of those years...
BTW...I live in California (my whole life, and until I can get to TX)...so if anyone understands hyper-fluctuations....it may just be me...or folks like me...
My remaining 401k sucks butt completely, and it pisses me off, because, if I was allowed by the Feds, to shelter that $$ in real estate instead of mutual funds, I would have at least *some* control over when to hold or fold, instead of having a "trustee* making those decisions for me....then instead of losing 30% of my 401k's "value" I could have at least put it into something that would not have declined at fast as a TV journalist's tongue can wag....
but, again, I guess since I wasn't granted that luxury 2004-present, it prevented me from buying real estate at astronomical prices, thus ultimately sheltering us from the tsunami in our rear view mirror...
let's face it...who the f*** knows what will happen...do the best you can with the tools you have available at the time...good luck to all..
I mean that...
Last edited by MissDaisy; 03-03-2009 at 12:43 AM..
Heck, if you had invested $10,000 in 1934 in a blue chip type stock that $10,000 would have been worth $70 MILLION at the end of 2007 (obviously less now but even at 3 million that is a heck of a gain).
It's really all about timing. Anyone who bought in the late 90's and sold a few years ago would probably be very happy. I had a stock for less than ten years, it went 35x the original price, although I only sold at around 25x. Then again, many have dropped too. The fact is, the number of foreclosures shows how much it's about timing. All those people thought it was a good time to buy, but apparently not. I know someone who bought a fixer last year and with the cost of renovation, it has cost him about 50-100k more than a larger and nicer house a couple doors down that is for sale now in mint condition. He even borrowed from his retirement to buy that place.
The basic idea of the 401k is that you put pre-tax dollars in and then let it sit there until you retire then you pay tax. Sounds great, right? Until you do the math. First off, 401ks are not tax free, you pay taxes upon withdrawal. In this case you are assuming taxes will be lower in the future not higher. Just ask yourself this, with the growing social security and Medicare welfare system, do you really think taxes will be lower in the future? Don't think so. Another hidden tax is the inflation tax. While your 401k is getting dividends and increasing in value (as a result of inflation) you are going to get taxed on all those gains. Compared to a roth ira, your money will compound tax free! Better to pay the taxes now than later.
The second problem is that your money is locked away in a vault essentially. Putting money in a 401k is like buying a 40 year CD. If you get in a crisis you will have to pay hefty fees to get the money.
The third problem is all those little fees these supposed financial gurus wrote in the legal text of your 401k that you agreed to when you opened the account. Management fees, service charge, trading fee, early sell fee on and on and on. A recent study revealed that out of the 3 trillion invested in 401k's the industry generated 89$ billion in fees. That is 3% of the funds. Just imagine those numbers over 30,40,50 year period.
If your employer matches that will cover a little bit of he expenses but not by much.
What you should really look at is a roth ira and roth 401k. Forget traditional 401k!
Oh and don't put your entire retirement in a 401k, stock market is the biggest casino out there. You would also want a well diversified dividend portfolio to live off. Most 401k investments are 100% speculative, buy x price sell for y price where y is hopefully bigger than x.
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Heck, if you had invested $10,000 in 1934 in a blue chip type stock that $10,000 would have been worth $70 MILLION at the end of 2007 (obviously less now but even at 3 million that is a heck of a gain).
You are ironically forgetting to factor in inflation. Also risk. You would have to have made a lucky investment to invest in such a company, though you could strike it rich. Like I said, stock market is biggest casino out there some get rich, most don't.
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I have always believed that the reason real estate is called *real* is because it, unlike stocks, can never go to zero value...it is a tangible asset..stocks are an *idea*, subject to another's speculation, dreams, greed, etc...
It really depends on the stock and management. There is a reason warren buffet places so much emphasis on having good management. You also need to really know how to read the financial statements. Some of these companies are leveraged to the hilt, that means high risk.
Last edited by killer2021; 03-03-2009 at 01:46 AM..
It's really all about timing. Anyone who bought in the late 90's and sold a few years ago would probably be very happy. I had a stock for less than ten years, it went 35x the original price, although I only sold at around 25x. Then again, many have dropped too. The fact is, the number of foreclosures shows how much it's about timing. All those people thought it was a good time to buy, but apparently not. I know someone who bought a fixer last year and with the cost of renovation, it has cost him about 50-100k more than a larger and nicer house a couple doors down that is for sale now in mint condition. He even borrowed from his retirement to buy that place.
The interesting thing about "Timing" is my 401k specifically prohibits Timing...
Last year the management instituted rules to curb timing by limiting the number of round trips your money can make...
I can move it from XYZ mutual to another fund and then back to XYZ only a couple of times before being locked out.
I also have no ability to put a stop loss order in to protect my balance... so my ability to move my investments is always after the fact.
4First off, 401ks are not tax free, you pay taxes upon withdrawal. In this case you are assuming taxes will be lower in the future not higher.
First off, duh. No one ever said they're tax free. And I am not assuming that tax RATES will be lower in the future, but I am assuming that my income will be lower when I have stopped earning wages. Thus I will be in a lower tax bracket. I would rather pay taxes on that money when I am in a lower tax bracket.
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The second problem is that your money is locked away in a vault essentially. Putting money in a 401k is like buying a 40 year CD. If you get in a crisis you will have to pay hefty fees to get the money.
Duh, again. I know that my money is unavailable to me. I have a financial plan that seriously reduces the possibility of me being in a "crisis," and I have other money invested in other places that I can access in an emergency -- without fees.
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A recent study revealed that out of the 3 trillion invested in 401k's the industry generated 89$ billion in fees. That is 3% of the funds. Just imagine those numbers over 30,40,50 year period. If your employer matches that will cover a little bit of he expenses but not by much.
Mine does.
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Oh and don't put your entire retirement in a 401k, stock market is the biggest casino out there.
You have a real flair for the obvious, don't you? This is Investment 101's first lecture. How stupid to you think we are? Eh, never mind.
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Oh and don't put your entire retirement in a 401k, stock market is the biggest casino out there.
You have a real flair for the obvious, don't you? This is Investment 101's first lecture. How stupid to you think we are? Eh, never mind.
Agreed it is investment 101, but, never the less the company line on 401k's has been financial security.
I've sat through a number of 401k company sponsored events and the mantra is always the same... pick a good mix, max out your contributions and let the 401k build your retirement...
Anyone questioning the mantra was seen as ill informed at best or a trouble maker at worst.
In short, the goal of the plan administrator is to get as many dollars as possible into the company 401k through pay check deductions... and why not... the more money coming in the more in fees generated.
Quote:
Oh and don't put your entire retirement in a 401k, stock market is the biggest casino out there.
You have a real flair for the obvious, don't you? This is Investment 101's first lecture. How stupid to you think we are? Eh, never mind.
Agreed it is investment 101, but, never the less the company line on 401k's has been financial security.
I've sat through a number of 401k company sponsored events and the mantra is always the same... pick a good mix, max out your contributions and let the 401k build your retirement...
Anyone questioning the mantra was seen as ill informed at best or a trouble maker at worst.
In short, the goal of the plan administrator is to get as many dollars as possible into the company 401k through pay check deductions... and why not... the more money coming in the more in fees generated.
You are correct, in many corporate environments it has been the mantra.
I simply never saw the 'benefit' of them.
Preferring to instead have higher yields and true tax benefits; rather than what 401ks could offer.
The basic idea of the 401k is that you put pre-tax dollars in and then let it sit there until you retire then you pay tax. Sounds great, right? Until you do the math. First off, 401ks are not tax free, you pay taxes upon withdrawal. In this case you are assuming taxes will be lower in the future not higher. Just ask yourself this, with the growing social security and Medicare welfare system, do you really think taxes will be lower in the future? Don't think so. Another hidden tax is the inflation tax. While your 401k is getting dividends and increasing in value (as a result of inflation) you are going to get taxed on all those gains. Compared to a roth ira, your money will compound tax free! Better to pay the taxes now than later.
The second problem is that your money is locked away in a vault essentially. Putting money in a 401k is like buying a 40 year CD. If you get in a crisis you will have to pay hefty fees to get the money.
The third problem is all those little fees these supposed financial gurus wrote in the legal text of your 401k that you agreed to when you opened the account. Management fees, service charge, trading fee, early sell fee on and on and on. A recent study revealed that out of the 3 trillion invested in 401k's the industry generated 89$ billion in fees. That is 3% of the funds. Just imagine those numbers over 30,40,50 year period.
If your employer matches that will cover a little bit of he expenses but not by much.
What you should really look at is a roth ira and roth 401k. Forget traditional 401k!
Oh and don't put your entire retirement in a 401k, stock market is the biggest casino out there. You would also want a well diversified dividend portfolio to live off. Most 401k investments are 100% speculative, buy x price sell for y price where y is hopefully bigger than x.
You are ironically forgetting to factor in inflation. Also risk. You would have to have made a lucky investment to invest in such a company, though you could strike it rich. Like I said, stock market is biggest casino out there some get rich, most don't.
It really depends on the stock and management. There is a reason warren buffet places so much emphasis on having good management. You also need to really know how to read the financial statements. Some of these companies are leveraged to the hilt, that means high risk.
So, what exactly makes a 401K more of a crap shoot then a Roth IRA? Keep in mind that not everyone can GET a Roth and also keep in mind that if an employer matches funds for a 401K it IS a good idea to max out that match--after that, I agree, a Roth is a better idea. It also comes down to diversification and being spread out properly to minimize the ups and downs in the market.
The example I gave about the historical gains in the stock market is documented and not just some numbers I threw out there. I got the information from the American Funds. You can look it up and see for yourself.
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