Avoid Retirement Pitfalls
The 401K plans are considered to be Savings Accounts but the fees paid to the mutual funds management is far more higher than the returns the 401k provides . Most people think that 2% fee is small but when the same fee compounds over 20–30 years it becomes a huge sum.
Steps
- 401K plan mutual funds just follows the market .you don't need fund managers to put money in the funds which just follows the market .
- A Simple stocks which follow S&P 500 has outperformed all Mutual fund in the history, till this date .You can use a computer to do that for free of cost .
- If you invested in mutual fund in the years between 2000 and 2015 in S&P 500 .The market had two drastic falls and still trades slightly above the resistance line .
- Your portfolio would have been shrunk into half twice during the 2002 and 2009 crash where every mutual funds crashed drastically .
- It can be seen that every-time a fall in 50% have to be compensated with 100% rise back to reach the previous level.
Tips
- The investor puts up 100 percent of the money and takes 100 percent of the risk. The 401(k) plan puts up zero percent of the money and takes zero percent of the risk. The fund makes money through fees, even if you lose money.
- Whenever there is systemic fall in the market, the entire mutual funds takes the wild hit .
- Take for Example Nikkei 225 Index which represents 225 companies of Japan . since 1990 when Nikkei was at 39000 points, now in 2015 is at 13000 .so can the mutual funds do good in that situation?
- Can the people dreaming of retirement, can get the dream money when the market behaved like the Nikkei 225 . Will the fund manager still tell to invest for long term . For 20 years Nikkei have been falling and stagnant, can people having 401(K) continue to invest ?
- Diversification does not save you from a fall or stagnation market The Best thing to do is educate yourself about the downfalls of Mutual funds .
Warnings
- The Concept used by Mutual fund institutions to lure customers .Let's Break it down how much actually a customer can get .
- Take for example of employee at 25 years who is gonna invest in 401k mutual funds for an another 40 years till 65 years of his lifetime .The Concept used by Mutual fund institutions to lure customers .Let's Break it down how much actually a customer can get .
- Take for example of employee at 25 years who is gonna invest in 401k mutual funds for an another 40 years till 65 years of his lifetime .
- If he invest $1000 as one time investment with compound interest of 7.5% ,the gross return would be $140,000 .How much do the financial institution charge you, 2.5% of compounds interest which will give them $110,000 as fee for managing your account .In your account will have $30,000 as Net Gain .
- Now its Clear that mutual fund institution gain $110,000 from our money with 0% investment from their end .
- Your Money of $1000 compounds @5.5% which will give you only $30,000
- Finally when you withdraw the money by distribution, their comes taxes where it's taxed 35% where the Govt will take $10,500 as taxes
- The Net amount you will be left with is $19500 in 401k Account .
- where you take all the risk and provide them with investment money . The financial institution put up zero investment and zero risk and gain more than you do.
- Front Loads Fees, Sales Fees,Management Fees,Advertisement Fees,Stocking selling Fee,Taxes - Pre And the Post Selling Mutual funds .
- Buyers of mutual funds Please beware that mutual funds are not saving accounts, you will have these fees upfront and right till you exit .
