401k and other retirement plans: have you raided yours yet?

[Valmy]

Well of course over the long-term the stock market has proven to be a consistent winner.

Well yeah if you are saving for retirement a diverse portfolio of mutual funds is a great idea, and everybody should do that if they can.  But not so much if you ARE retired and need a steady source of income.

[Admiral Yi]

Well yeah if you are saving for retirement a diverse portfolio of mutual funds is a great idea, and everybody should do that if they can.

The only reason to put your money in mutual funds is because your 401k gives you no other choice.

Much better to buy stocks or ETFs directly and save yourself the management fee.

[crazy canuck]

Well yeah if you are saving for retirement a diverse portfolio of mutual funds is a great idea, and everybody should do that if they can.

The only reason to put your money in mutual funds is because your 401k gives you no other choice.

Much better to buy stocks or ETFs directly and save yourself the management fee.

You dont have the option to create your own self directed fund within a 401k plan?

[Admiral Yi]

You dont have the option to create your own self directed fund within a 401k plan?

I'm given a list of about 7 managed funds to choose from.

[Valmy]

Much better to buy stocks or ETFs directly and save yourself the management fee.

Buying individual stocks is a little different than 'investing in the stockmarket' in general and relying on its track record of longterm growth though isn't it?

[Malthus]

From what I've seen, renting properties is a risky way for the average person to make money.

Yeah well until we find that non-risky way we are stuck with it.

There is a whole spectrum of ways to invest one's money, or to start a business. All involve some level of risk, but not all have the same level.

My concern is this: retirees really ought, in a perfect world, to be investing their money in reasonably low-risk investments. This is a reasonably high-risk business (again depending on jurisdiction), but many don't seem to know that. Moreover, the risks are not merely financial - you are dealing with tenants and, if they are unreasonable, you will end up in litigation or worse. Retirees may not be the best persons to deal with the downside risk - which at worst is abusive and possibly insane tenants who wreck their property and/or refuse to pay rent, blame the evil landlord for all their troubles, have multiple (possibly true) sob stories about why they can't pay this month and why oh why can't you just give them a break? Etc.

All people see is that it is a business they can readily get into. My concern is that many do not know what they are getting themselves in for. 

[Admiral Yi]

Buying individual stocks is a little different than 'investing in the stockmarket' in general and relying on its track record of longterm growth though isn't it?

You can diversify (which I think is what you're getting at) by buying a variety of individual stocks.  Or you can do it much easier by buying broad index funds.

[crazy canuck]

You dont have the option to create your own self directed fund within a 401k plan?

I'm given a list of about 7 managed funds to choose from.

Wow, that sucks.  What is the justification for it being so restrictive?

[Valmy]

All people see is that it is a business they can readily get into. My concern is that many do not know what they are getting themselves in for. 

Well the retired people I see doing it have been landlords before and know what they are doing.  They now have the time to focus on it and it is what they know.

But doing this was not their first choice, they are doing it because of the low interest rates which ruined their plans at least in the short term.  I was just using that as an example not general advice for everybody.

[The Minsky Moment]

Buying individual stocks is a little different than 'investing in the stockmarket' in general and relying on its track record of longterm growth though isn't it?

You can buy ETFs that track passive indices; in fact, those are may of the most popular ETFs.
There is a small fee advantage for ETFs although for the better passive MFs like Vanguard it is a pretty small difference.

[Admiral Yi]

Wow, that sucks.  What is the justification for it being so restrictive?

You mean in terms of the small number of funds, or in terms of being limited to actively managed funds?

My understanding is that one reason (the only reason?) 401ks are limited to managed funds is because they are the only instruments set up to handle little dribs and drabs of money every pay period.  Clearly you can't walk into an exchange and say "I'd like to buy $50 worth of stock every two weeks."  Or you could, but you would get wiped out by brokerage fees.

[crazy canuck]

Wow, that sucks.  What is the justification for it being so restrictive?

You mean in terms of the small number of funds, or in terms of being limited to actively managed funds?

My understanding is that one reason (the only reason?) 401ks are limited to managed funds is because they are the only instruments set up to handle little dribs and drabs of money every pay period.  Clearly you can't walk into an exchange and say "I'd like to buy $50 worth of stock every two weeks."  Or you could, but you would get wiped out by brokerage fees.

But what you could do is take your 401k contributions in cash and then invest the said cash in the time and place that best suites you.  That is generally how our equivalent works.

[merithyn]

Well the retired people I see doing it have been landlords before and know what they are doing.  They now have the time to focus on it and it is what they know.

But doing this was not their first choice, they are doing it because of the low interest rates which ruined their plans at least in the short term.  I was just using that as an example not general advice for everybody.

Don't confuse the lawyers with the idea that "regular people" actually know how to run a business, Valmy.

[merithyn]

But what you could do is take your 401k contributions in cash and then invest the said cash in the time and place that best suites you.  That is generally how our equivalent works.

My 401Ks are contributed to by the company, but only if I contribute to them, too. If I pull money from the 401K prematurely, there's a massive fee.

It doesn't seem possible to do what you're suggesting and still get the full amount, ie from the employer.

[crazy canuck]

Well the retired people I see doing it have been landlords before and know what they are doing.  They now have the time to focus on it and it is what they know.

But doing this was not their first choice, they are doing it because of the low interest rates which ruined their plans at least in the short term.  I was just using that as an example not general advice for everybody.

Don't confuse the lawyers with the idea that "regular people" actually know how to run a business, Valmy.

Yeah, that is why regular people need to retain lawyers to get them out of the messes those said regular people got themselves into in the first place.

A man is flying in a hot air balloon when he realizes he is lost. He reduces his altitude and spots a man in a field below. He lowers the balloon toward the man and shouts to him, "Excuse me, can you help me? I am late to meet a friend, but I don't know where I am."

The man below says, "I'm happy to help. You are in a hot air balloon, hovering approximately 30 feet above this field. You are between 40 and 42 degrees N. latitude, and between 58 and 60 degrees W. longitude."

After a brief pause, the balloonist declares: "You must be a lawyer."

"I am" replies the man. "How did you know?"

"Well," says the balloonist, "everything you have told me I am sure is technically correct, but I have no idea what to make of your information, and the fact is I am still lost."

The man below responds, "Indeed. And you ... You must be a client."

"Why, yes, I am," replies the balloonist, "how in the world did you know?"

"Well," says the man, "you don't know where you are, or where you are going. You have made a promise which you have no idea how to keep, and you expect me to solve your problem. The fact is you are in the exact same position you were in before we met, but now it is somehow my fault."