Personally, I'd consider upping your contribution percentage if your investment is down 15% and upping again if it has declined by 25% - as long as it has decent performance relative to its benchmark (whatever that may be). Otherwise, you'll fall into the same trap as so many before you - buying high and selling low.
the profits will not keep up with inflation - you will actually loose money if you figure in the increased future tax rate. not to mention the looses of what you could have done with the money in another investment. 401k's are a loser period. study it you will come to the same conclusion. mb
MarkBrown: I've studied it and you're dead wrong. Tax free compounding over any significant period of time (such as an 18 year old investing for retirement) far outweighs any plausible increase in tax rate.
just the thought that someone would allow you to make money compounded tax free should wave a red flag. lets see gas is 50 cents a gallon but i cant buy gas with my 401 k money so i wait - now gas is 20 dollars a gallon plus the tax on it is 50 dollars a gallon - plus my income tax rate is now 75% of my income - boy i'm so smart i joined the sheep heard, and did not choose a life as a wolf - cause that might have took some deep thinking and a taste for blood.
Your gas theory would never happen. Simple economics shows that when a commodity or product reaches a certain price, buyers move to a substitute. Even if there wasn't any substitutes on the market, the buyer would demand a switch by refusing to buy the overpriced commodity/product and the reward (attracting the large mass of substitute buyers) for either innovation or supply of alternative resources (In this case, Ethanol or solar power or electric power. Who knows.) would be so high that someone would certainly invest funds to get substitutes out to the public for a decent price. It's happened multiple times in history and it's going to keep on happening. Also the inflation in prices will also inflate the stocks and the commodities my money is invested in. In theory the inflation is the same. A 401k isn't a bank account you put money in, it's an investment that withstands inflation.
After 33 years I can now roll my lump sum into an IRA...but withdrawals don't get taxed at the "Long Term" capital gain rate because..."That's the rules". It sure seems to me that doubling the tax rate on my withdrawals goes a long way to diminishing the tax-deferrence benefits early on. (I am sure it was there in the fine print somewhere...so shame on me) You would think the bureaucrats would see 33 yr as a "long" time. However, the govt backroom statistical revenue boys knew what they were doing when they setup the "rules". Don't doubt that for a minute. It really seems ugly when you also roll in the complex rules and penalties associated with the withdrawal mechanism. At some point you gotta think, "Why isn't the govt out there to help the individual really retire comfortably ... rather than screw him into oblivion?" I mean...what is their 'real' motive? The Roth tax situation looks nice...for now. What probability do you think there will not be some 'emergency' that revokes the tax-free status? Can you "trust" the government? Sorry for the rant...but considering the long term risks are worth a few moments...so you don't wake up one day...asking my question... Whose money is it anyway? T200
This is more or less my view why i don't put money into the retirement account. If you look at the big picture and ask yourself, who is benefit the most from those vehicles? Yes, Wall Street. Who just take fee for "managing" your money. If they make money (when more money put into the market), they take fee plus a bonus. If they loss your money (when people w/d from the markets), they'll be nice, they only take your fee.
Hi Morreo, that is great news coming from someone in your age group. Back when , I was 18yrs old I'd been working already and going for the gusto working full time in the day and night school for 5hrs after work Mon-Fri. I would suggest maybe spreading out your investment capital in 20% portions are 25% portions , from aggressive down to capital preservation. Yeah I know you're young, but just because your young doesn't mean you can't try to minimize losses and trying to get as much bang for your buck as possible! Let me give you one final secret..... come closer I'm whispering ( Buy some penny stocks) where possible. Before anyone goes off, please hear me out. With the right plan, that one strategy could really catapult your account way through the roof a lot faster than you think. It's just a thought. Morreo Best of success to you. http://www.info.webpowerpublishing.com/cu/forexcurrencytrading.html
Good move. I would give the following advice: 1) Try to increase your savings ratio once you move up the job ladder. Moving it from 6% to even just 10% won't cost you much and will make a *huge* difference for your retirement assets. Once you get a good job (e.g. 50k+), if you can save 20-25%+ of afer-tax income, you will become a multimillionaire. 2) Do not invest in mutual funds. Most underperform the S&P and it is practically impossible to choose ones that will consistently outperform. Instead, buy an S&P index fund with the lowest expense ratio, and a Russell 2000 or Wilshire 5000 index fund, again with the lowest expenses. Also buy a world index fund (to hedge country/dollar risk). 3) Whenever the S&P is down more than 10% and the media/public is bearish, try to increase your contributions. 4) Never sell 5) Avoid debt as much as possible. Even with mortgage debt, try to get as short a mortgage as possible (e.g. 15 years not 30) by getting a smaller place, and consider refinancing and paying it off as soon as you can afford to. 6) If you are in stable employment and are prepared to settle down locally, buy a modest house or apartment as soon as you can. 7) Never get married. If you want to have kids and think marriage is necessary, get an iron-clad prenup. If your fiancee hates the idea, find another one who doesn't. 8) Always carry up to date home, medical, unemployment, income protection, and legal insurance. 9) Once your 401k gets to 1 mill, start diversifying away from equities. Put say 10% into bonds & commodities, and increase the percentage as you get older. By the time you are 50 you should have maybe 40% or less in equities. Preservation of capital and income becomes much more important than return on capital. 10) Speak to a *competent* tax advisor/financial planner to go over the tax issues. There are benefits to having a good chunk of money outside government-regulated vehicles such as pension wrappers. It hedges your socialism risk (e.g. govt raids on pension money, inflation, tax hikes etc). Those steps should avoid the most common financial disasters, and maximise your retirement assets.