[theaf1don]

Originally Posted by number335

Mismanagement of your 401k is not the same thing as poor returns from your 401k. If you are not looking at your 401k as a long term investment, and treat it like a checking account to draw money from, it will most likely not give you the returns you expect.
Failure of 401ks are mostly attributed to participants that do not understand what they are for, and not the 401ks themselves. They contribute too little, too late in the game to save enough to retire, or they cash out of them when they change employers.

Exactly. That article clearly says thats the case as well. If almost 60% of the people in the survey contributed less than 2 years worth of contributions (<25k) over a 30 year period, then tarts their fault. It has nothing to do with return. Also, asset allocation is the same in a 401k as it is with any other investment account. If people can't get their allocation right with a 401k, what makes you think they can get it right in a standalone investment account?

[MediaArtist]

It's true that some people don't save enough, or cash out their 401k accounts, but I believe it clearly says that most 401k plans are poorly managed and diversified which goes back to my main point. In fact, here's it is again:

too many have misallocated their investment choices, thereby failing to be adequately diversified; too many have churned their investments, foolishly trying to time the market or chase the hottest trends

That clearly implies the returns are "bad" not because people are cashing out but because the majority of people aren't able to effectively manage their plans.

Of course anyone can claim that "they have the secret formula", but actual research and statistics show that in general that isn't the case.

[theaf1don]

BTW here are the options in my 401(k). From what I've heard from others, its a pretty good one.

[theaf1don]

Originally Posted by MediaArtist

It's true that some people don't save enough, or cash out their 401k accounts, but I believe it clearly says that most 401k plans are poorly managed and diversified which goes back to my main point. In fact, here's it is again:



That clearly implies the returns are "bad" not because people are cashing out but because the majority of people aren't able to effectively manage their plans.

Of course anyone can claim that "they have the secret formula", but actual research and statistics show that in general that isn't the case.

All a 401k is a container for whatever investments the employee wants (although some have limitations). If you're saying the reason is due to picking bad investments, then it has nothing to do with the 401k, and all to do with picking the stocks. Or am I missing something?

BTW I don't mean any disrespect, its actually nice to be in an intellectual conversation.

[MediaArtist]

Originally Posted by theaf1don

If people can't get their allocation right with a 401k, what makes you think they can get it right in a standalone investment account?

Which is why there are other much higher performing options than a 401k or someone opening their own "etrade" account.

Of course, if you believe in your 401k, then by all means keep contributing to it. But statistically you don't have a great chance of outperforming the herd.

[MediaArtist]

Here is a Vanguard 10 year study of their best performing index retirement funds, with rebalancing, and of course already diversified:



Your annualized internal rate of return (IRR) over this period would have been 3.07%. Not even beating the boring t-bill over the same period of time.

[theaf1don]

Originally Posted by MediaArtist

Which is why there are other much higher performing options than a 401k or someone opening their own "etrade" account.

Of course, if you believe in your 401k, then by all means keep contributing to it. But statistically you don't have a great chance of outperforming the herd.

So what is your advice then? Pay someone to manage your investments for you? Fund managers are known to barely beat the market.

[number335]

What is the other retirement plan option other than a 401k? You can invest into an IRA, but you still run into the same risks. You also can't contribute as much into an IRA. Plus an employer doesn't match or contribute profit sharing money into an IRA. Currently, some employers auto-enroll employees into their retirement plans in order to get them to participate. The reason is that most people don't plan for the future and aren't willing to save.

[ideliver]

Originally Posted by MediaArtist

Which is why there are other much higher performing options than a 401k or someone opening their own "etrade" account.

Of course, if you believe in your 401k, then by all means keep contributing to it. But statistically you don't have a great chance of outperforming the herd.

what are these magical "options" that beat pre-tax, tax deferred compounding growth...that are not available to 401k investors...

[theaf1don]

Since a 401k is an investment vehicle, and not an investment, it really makes no sense whatsoever to talk about the performance of 401ks, or for that matter the performance of IRAs. You should instead talk about the performance of a specific stock, of a specific mutual fund, of a specific portfolio etc. To talk about 401ks as if they were an investment shows some kind of fundamental misunderstanding of the whole concept.

[Pcemkr]

From M3s to 401ks in 2.5 pages.

[BayMoWe335]

Originally Posted by len56

this article sums most of us up perfectly :P

****
depends on your personality, do you want nice things when you're young and fun (correct answer), or when you're old and boring?

no bias.

haha, it's up to you, but personally I'd rather have nice things when I can enjoy it more.

fuck it, do it

Why do you think you can enjoy and appreciate nice things more when you're young than when you're say, 50. Honestly, I think you can enjoy nice things more at an older age. You can enjoy being young when you're young.

[BayMoWe335]

Originally Posted by MediaArtist

Sure there could be special individuals out there who have carefully managed their 401ks and have managed to have a respectable annualized return with proper education to make informed decisions. But most people simply pick an employer sponsored plan, pump money into it pre-tax, get a contribution and sleep well at night.

Statistically though, 401k plans have failed in performance as an investment vehicle over the past 25 years.

Here's a statistic to mull over: The past 25 years the S&P 500 had annualized returns of around 12%. Bonds around 7.5%. Mutual funds? 4.4%.

I'm not trying to bash on people who put a lot of their hard earned cash into a 401k, but I'm not seeing the performance numbers. It could be for a variety of reasons which I'm too busy to actually seriously research myself; hidden costs in plans, people making uninformed decisions and following funds based on return history, no rebalancing, etc.

The simple fact that your boring t-bill has outperformed your average investor fund the past 25 years shows that 401ks don't perform very well.

I believe I mentioned my 401k plan has multiple options, including the S&P 500 index. Everyone that knows an ounce about markets knows actively managed funds underperform the index 95%+ of the time. I'm not recommending mutual funds...I own 0 mutual funds unless they are an index.

My point is a good 401k offers almost any investment vehicle you want AND offers the tax advantage. Not sure what you're saying to do with the money you aren't putting in your 401k. You have the same kinds of investment choices, but no tax advantage. If your 401k options suck, that's another story.

[JasonCSU]

Originally Posted by BayMoWe335

I TOTALLY AGREE you should enjoy life. This is why I spend time with people I Love, take trips, and driving an OK car...BUT using "living for today" as a motto to justify not saving enough and making stupid financial decisions will only increase you chances of the worst possible scenario: Being old and poor without the ability to work . Even if I'm not in good health, I want money so I have options. I want to see the best doctors, get the best medicine, and enjoy the good times I do have if I'm sick. Don't underestimate how much your life will suck if you're poor and have a terminal illness. Despite what you think, there are huge advantages to being rich and sick versus being poor and sick. Just because you're sick doesn't mean your life sucks all the time, but it will if you're poor.

Still, you'll probably at least live into your late 60s or early 70s with few health problems. Average life expectancy is 80+ and rising. We don't live in Sierra Leone. Saving money is like insurance. Living for today is great until you're wrong (which you most probably will be) and you're old with jack shit. This doesn't mean don't enjoy life, but even being in your 50s with a lot of money will be pretty cool. I'd honestly rather drive the M3 when I'm older.

Exactly. The key is finding the happy medium where you can enjoy life today, but also plan and save for the future. It's obviously not smart to "live for the moment" and justify spending every penny of your income because it is there. But, it is also not fun to sacrifice living live now (especially while young) to plan solely for your retirement. Everyone should be able to find that happy medium within their income, but sometimes people have different priorities which influence the cash flow.

The OP's financial situation should be able to afford an M3 at some point, there are just different methods of getting there. He could put down a relatively small down payment and lease the car, or save longer for a larger down payment to finance and own the car. He could also take advantage of someone else's depreciation and buy a used M3. Either way, he seems to be financially smarter than most people I know.

[number335]

Originally Posted by theaf1don

Since a 401k is an investment vehicle, and not an investment, it really makes no sense whatsoever to talk about the performance of 401ks, or for that matter the performance of IRAs. You should instead talk about the performance of a specific stock, of a specific mutual fund, of a specific portfolio etc. To talk about 401ks as if they were an investment shows some kind of fundamental misunderstanding of the whole concept.

You are the one that started talking about the performance of 401ks. The benefit of these retirement plans are that they are tax sheltered. A stand alone investment will be reported to the IRS with every trade/exchange you make. You will pay taxes on all earnings and capital gains. You can move your assets around within a 401k without having a 1099R generated.

[youngnastyman]

Back to OP's question - some of us didn't buy our cars brand new?

I'm taking home about $6.5 - $7K a month with my salary and side business ventures. I live in a decent apartment inside the loop, put down 10k on my car and financed it for 5 years. Also I have a beater that I drive to and from work every day that gets 25mpg when I'm good to it and keep her maintained. All this and still putting 10% of my salary into an ESPP stock purchase plan and putting another 10% of my salary into a savings account. AND i'm putting in the max that my company will match into my 401(k) which is 4%. I'm 25 and just graduated college Dec 2011.

Then again - I live in Houston, and cost of living is not as high as it is in California. But - not all of us 'youngsters' are dumba$$es living with mommy and daddy and dumping the money they'd be paying towards rent/mortgage/savings into a car they couldn't otherwise afford.

Did I make a financially sound move by buying this car? Prob Not... But at the end of the day, if things turn around and I need to get rid of it, I can do it with my eyes closed, move on, maybe come back later (like when I get married/have kids/grow up...).

[MediaArtist]

I feel like I may have trolled the thread a bit much with the 401k discussion.

To answer the OPs question, I think at $100,000 you could afford an M3, or at least lease one, which a lot of people actually do.

It just depends on your priorities. I'm actually like you, I didn't own my first nice car until well into my 30s. I had a long term vision when I got out of graduate school, and an M3 in my 20s wasn't part of that vision.