News this week that inflation eased more than expected in October solidified the view that the Federal Reserve is done with its most aggressive rate-hike campaign in four decades.
And that could be a boon for the stock market and your 401(k).
Wikipedia uses a good definition for pyramid scheme:
A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.
I don’t think that describes a 401k. I don’t get money if I convince you to open a 401k. I do pay fees to a company to manage my 401k but I’ve chosen the lowest fees available to me.
Okay... But the 401k holders aren't being cheated in this instance. They bought an asset that can increase or decrease. It increased for a long time. Then decreased. Then increased again FAR beyond where it was in 2008 just 6 years later. Most investors kept their money in and are doing just fine.
401ks are insured against losing the assets, e.g you own 500 of a particular option, you will always own those 500 unless you sell or that particular asset goes belly up, which is quite rare.
Pensions are a different beast. Closer to the pyramid scheme referenced earlier, and were generally dissolved over the last 40 years by the companies that promised them.
No, no, I get all that. I’m just trying to understand what is meant by 401k being insured against losses…I didn’t think that was a thing. I thought any investment whether my personal stocks, 401k, or Roth IRA were all subject to “could disappear overnight kthxbye”.
It depends on the assets in your account, but if it's not something covered by the FDIC, chances are it has coverage from the SEC, FINRA, ERISA, others, or several of these.
That’s not even slightly true. The only differences between a regular investment fund and a 401k are that you don’t have to pay income tax on the money you put into a 401k it and you can’t withdraw your money before retirement without substantial penalties.
It is well above historical valuations. Ultimately, the problem is that you simply won't get much of an ROI if you keep on investing on stocks at these valuations. So the natural trend is for people to move away from stocks,
Interest rates are pretty good right now. It isn’t hard to find an account at 4.75% to 5% interest. While stocks will do better over the long term, if you don’t trust them then this is also a solid option.
So you sent me down a rabbit hole and I agree with you. I think the market is overvalued. For me the question is now what does that mean and I see three possible options: 1) market trends down to equilibrium 2) market quickly drops to equilibrium & 3) market over corrects and goes below equilibrium. It looks like from the great recession until 2015 we were under valued and valuation has spiked since then except for the COVID drop, which brought us again to equilibrium. I think #2 is the most likely scenario. I’m not going to pull my retirement accounts out but I’m going to keep an eye on this. Thanks for the heads up
I will add that I still think we are due for a correction but that comes from the major stocks warming that the current quarter sales are gonna look ugly, even grocery stores have been warning that overall sales on amount and expense are down. Discount groceries sure are taking off too. I don’t know how much of a dip but I think the post black Friday numbers might cause a short term slump on a lot of retail stocks
I’m not saying the stock market is it without risk, but if you are diversified in a pretty broad market heavy portfolio, over time you are generally going to beat the market. 80/20 rule has held fast for a very long time and with good reason.
DCA in, stay away from single stocks generally, and don’t panic sell. Time in the market> timing the market and all that. Eventually you will come out ahead.
Investing in your and your children’s future should be your style, it should be everyone’s style.
I can’t afford to invest anyway.
Investing even 5% of each paycheck makes a massive difference, particularly if you start early. Money invested in total stock market funds doubles roughly every 10 years. Meaning, for every 10 years you decide to put this off, for every 10 years you decide to just not think about your future and your children’s future, you need to put twice as much money in to get the same outcome. Investing is not something you do when you are 60 and want to retire at 65, investing in your future is something you start ASAP.
Absolutely credit card debt should be taken care of first. My main point here is about the attitude that this is gambling, that investing in your own future is just chance on if it works. That is far, far from the case.
Buying a random stock and chanting to the moon might be like going to the casino but investing into a fund or into a balanced portfolio through your bank is not gambling. You really should reconsider our you’ll be working until you die, i mean we all could, but I’d rather not risk it.
You don’t have to invest a lot, my bank for example let’s me siphon off a little from each paycheck into an investment account.
If you enjoy working in the education field you could consider looking into becoming a classroom aide at some point (when you’re daughter’s education situation changes). States differ but most states just require a high school diploma but you’ll make more with an associates degree. You also get access to the retirement plans that teachers have and have all school vacations off so you can care for your daughter when she isn’t in school. It’s just something to think about. Where I am there is a shortage of aides.
She’s in online school. We had to take her out of public school because of severe bullying. The online school, which is a state program, so it’s not weird Christian homeschooling stuff, requires a parent to be a full time “learning coach.” One day I’ll look for another job, but probably not in the education field.
I’m sorry your daughter had to face severe bullying. I sincerely hope she doing better now. You might want to consider looking into the homeschool community. They frequently have social outings. It might be a good way to give her access to peers in a less stressful environment than school was.
Your financial decisions are your own but I would strongly - strongly advise you to think about your retirement as soon as possible. I have a 401k and a Roth IRA and I shovel as much of my weekly paycheck as I can. If I had started younger, say early twenties, I could have put significantly less money in there and have the same retirement savings now.
I just had to quit my job, which was so low-paying I didn’t have anything to invest with, in order to be a “learning coach” for my daughter’s online school. Now we’re on a single income. So it must be nice to have that kind of money to put into a retirement account, but we don’t have it.
Everyone’s situation is different. I work two jobs and thankfully my wife doesn’t anymore but she was working two jobs. It can be very hard to get ahead sometimes. If your financial situation improves I’d highly recommend looking into retirement savings. $10 a week in a 401k over 45 years gives you over $165k & if you have access to company matching funds that cuts your investment with the same results or doubles your savings. Like I said if you’re able. Maslow’s hierarchy comes first: food, drink, shelter, clothing, warmth, and sleep (well I sacrifice sleep a lot unfortunately).
I concur, especially if you have company match programs (like 5%) where you are basically guaranteed to double your savings FOR FREE.
Wife and I have 401Ks and rollover IRAs and even when the market wasn’t performing to expectations during this recession we only lost $1K total over the last quarter; and now that seems to be, maybe, bouncing back. Over the course of the 20+ years we’ve made something like 200% more* than just leaving it in an account. According to our financial advisor our retirement savings is better than most Americans. That’s pretty frightening since we still have 20 years to go, at the current economic growth, to be able to retire.
The stock market may be legalized gambling but if you have a financial advisor that makes money when you do (performance based pay) you are almost guaranteed to make a lot more money. And hey, if the stock market collapses we have a much bigger problems than how we’re going to retire.
*Thats literally off the top of my head. Do not grill me about how crappy or too good that % is. You’re wasting your time since this is just based on what I remember and how I feel about it. No, I can’t be arsed to figure the real data out.
Yup. A company match is literally free money for you.
The investment options in mine have consistently been losing value slightly since I started this job, but the total value has still significantly increased due to the company match.
Luck is more important than time. Eg. Ill health, caring for children/relatives, debt, mental health issues, etc. You can do everything right and still lose. That is life. In this hypercapitalist and often unequal system, it is more likely that you will lose.
A lot of people haven't saved enough for retirement. Not all of them did so out of ignorance. They simply had no choice but to prioritise the short term. More than you think, they're too ashamed to be honest about it, even if it's arguably not their fault.
Not you because you were simply responding to a comment, but this is why I strongly recommend people don't lecture too much when it comes to retirement and check their privilege. A lot of people are simply unaware of the privileged position they're in, would prefer not to think about how easy it is to lose everything, and that most people simply can't afford to invest even if they wanted to.
Eg. My current pension plan is to not live beyond 65. It's deeply sad, but it is what it is. I try to focus on the here and now. I'm lucky enough to have a roof over my head, but you'd be surprised how many homeless people have degrees. Hard science degrees too. People with decades of experience. It's scary.
If given the option I will 100% of the time take being lucky over being good. That said I’m still saving like crazy because I do not want to work until I die.
The problem comes when you are 65 and you decide it would be real nice to live to 66. And then you turn 66 and decide it would be real nice to live to 67. I have spoken to many people and they almost universally decide to live another year, just as you, today, have decided to live another year.
About 158 million Americans, or 61% of U.S. adults, own stock.
The top 1% holds 54% of stocks, worth $19.16 trillion.
The bottom 50% of U.S. adults holds only 0.6% of stocks, worth $21 billion.
White Americans own 89% of stocks, worth $31.87 trillion.
U.S. families held a median value of $52,000 in stocks as of 2022, far below the peak of more than $58,592 in 2001. This figure includes directly held stocks and mutual funds.
This is the danger of identity politics outside of an academic context, that it is misused to divide and conquer those who have shared class interests.
Don’t forget that when someone is talking about the average American “owning stocks” what they really mean is “has a retirement account that works in a way they don’t fully understand, which includes securities such as stocks, that they are not legally allowed to touch until they are 60”.
Anyone who tries to insinuate that the way average Americans “own stocks” is in any manner comparable to the way the wealthiest do, should honestly literally be put in the stocks where commoners can hurl tomatoes at them.
You are not forced to buy stocks in a 401(k), but most people chose to as it has significant tax advantages over owning them outside of a retirement account. Rich people would LOVE to own more in the same way and pay less taxes.
There is an annual contribution limit of $6,500 into a Roth IRA. They are something many Americans have as they are a solid investment choice. Invest the money in a total stock market fund and it will help you greatly when you retire.
The reason he has so fucking much money in his is because he literally gambled the money in the account. Someone is always going to win the lottery.
Uh not really… he started PayPal and then sold himself like 1 million shares at $0.001 (a tenth of a penny!) a share. Did you even read the article? Literally anyone who starts a business has to inject capital. It’s not gambling any more than any other person simply starting a business.
Also if you do read the article. You will learn it is not just Peter thiel, but many many many wealthy individuals who have done similar things. You say “the ultra wealthy would love to have Roth IRAs!” Well guess what: they do and it’s often a substantial portion of their fortune.
He did that in 1999 when PayPal was still X.com, something almost nobody has heard of, and it was not clear if the company would make it. As I said, he gambled his money and he won the lottery. Someone is always going to win the lottery.
You say in your original comment to me “the ultra wealthy would love to benefit from Roth IRAs!” Well guess what: they do and it’s often a substantial portion of their fortune.
Citation needed. You can’t invest in a Roth above a certain income as well, so that filters out a lot of folks. And at $5500/yr (only went to $6500/yr a few years ago) the math simply doesn’t make sense. Billionaires aren’t billionaires (or even those in the 8-9 figure world) because of a Roth and it is absolutely not a substantial part of their wealth. You can’t even access it until your 60’s without insane penalties.
Thiel’s case is the exception. Most billionaires aren’t sitting on that kind of wealth in a Roth. Most “ultra wealthy” folks were given a lot of money to start with.
Dude I literally linked an article in this very comment chain about how 5 billion of Peter Thiel’s dollars are tied up in a Roth IRA he started in the 90s, which covers interviews with the financial advisor who suggested he do it in the first place, and which talks about how this is an extremely common thing to do (literally why wouldn’t anybody who is already a multimillionaire NOT do what Peter Thiel did when they start their next business).
Yes. It’s a taxable event that also counts as income which could lead to even higher tax rates for you. It’s distinct from straight up contributing to one as intended and is a separate issue IMO.
They can still only put in $6,500 per year into the account. As I said “Rich people would LOVE to own more in the same way and pay less taxes.”
This guy won the lottery. Should we kill a program that you can only put $6,500 in per year that millions of Americans use just because someone wins the lottery? If that is the route you suggest, we will have to go and kill every program that people use to invest in their future.
You can get around limits with strategies like backdoor Roth IRA, also in some cases if you are the owner of the company you can have the company make distributions / contributions for you that go beyond the normal limits as well.
Ultimately, it is very much geared to benefit those that already have.
Sectors may be overvalued and individual firms certainly are; however, when you have over a decade of pricing that looks like overvaluation that just turns into the correct value.
You shouldn't dismiss those as imaginary as money doesn't pop out of thin air. All those gains need to be created by real workers being exploited harder elsewhere.
“I’m confident that this company that has never made money will make money someday, so I’m going to pay $30 a share for it” still sounds like it’s imaginary money to me.
I mean the fact that it didn’t have a profit for many years after that. Until 2017 it was essentially 0 profit because Bezos kept reinvesting the money back into the business
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