Starting 401k near the highs in a bull market?

[heavenskrow]

You are still 28 and you have long investing period ahead. Tax advantage space is yours to loose, if you don't utilize it.

At your age saving is the most important thing. If there is any matching from company, then that is gravy. You should atleast invest equivalent to matching contribution.



Search for my previous post regarding this. Japanese investor would have come ahead. Just need to have good asset allocation in place.

Transferring from 401k to IRA is just a click of a mouse. Do not listen to scare mongers. In IRA you get lot more flexibility compared to 401k, also you get asset protection in IRA. Creditiors can not touch IRA, even during bankruptcy (in some states completely and partially in some)

Edit: Here is the chart till 2013. Diversified Japanese investor would have been ahead lot earlier
https://www.elitetrader.com/et/thre...st-index-investing.297648/page-9#post-4528944

The thing is I save most of my money anyways. I probably save 60-70% of my paycheck every payroll. The company does not match, hence I am thinking it would be better in my own hands?

I would have larger capital to play with NOW and have more freedom in terms of how I want to play the market.

I'm wondering how much tax advantage is that much of an issue vs present value opportunity?

 

[Woodrow97]

He has 35 to 40 investing years ahead of him. Those long years is ideal to extract risk premium. You are telling him short risk premium. Forget all the chart non-sense. Show me any 40 year period, where investors have lost money in US.

The most prudent thing to do is to go long bonds (treasuries) or short the market. A buy and hold via a long fund sounds logical (here we go with Warren Buffet analogies...) but during recessions most retail investors are forced to sell their stocks at the worst time possible to put food on the table, locking in a substantial loss despite having a strategy with a positive outcome. This is something that never gets revealed whilst backtesting a buy and hold strategy............

elaborated a bit more for your convenience.

 

[sle]

When/if employment ends, the account MUST be properly transfered to ANOTHER equivalent tax-advantaged account, or penalties (and perhaps fines), as well as possible maintenance fees will be accessed

Are you sure about that? I kept several 401k from my previous employers and only recently rolled them all into an IRA. I paid no additional fees beyond the management fee for the fund.

Company matches are USUALLY maxed at 1% to 3% of EMPLOYEE WAGES/INCOME. A 4 or 5 grand pre-tax contribution is unlikely as far as the max company match is concerned. Beyond maxing to the company match, MOST company 401k's carry limited investment options, AND higher than average management fees than an individual can achieve through a self-directed tax-equivalent vehicle. Not maxing to the company match is leaving money on the table. Anything beyond, is better invested through a self-directed vehicle.

Last I checked, the S&P 500 vehicle in my 401k had equal fees to SPYs. Tax advantage is very important in many ways (e.g. if you rebalance between assets, you don't want the tax scrape).

 

[srinir]

The thing is I save most of my money anyways. I probably save 60-70% of my paycheck every payroll. The company does not match, hence I am thinking it would be better in my own hands?

I would have larger capital to play with NOW and have more freedom in terms of how I want to play the market.

I'm wondering how much tax advantage is that much of an issue vs present value opportunity?

Tax advantage space is big deal, as long you have few low cost funds in your 401k. Just plug-in in numerous calculators out there to see the effect of tax free growth vs same amount in taxable space. If your 401k fund has only expensive funds, then only it doesn't make any sense to invest there.

For some asset classes like bonds, real estate funds, emerging market funds which throws off lot of dividends and income, this tax advantage space is ideal. Otherwise you will be paying lot of taxes on these income and dividends at oridinary income rate every year

 

[heavenskrow]

Also, considering the future of America....I guess you have to speculate on whether America will have higher tax rates or lower tax rates than today?

 

[srinir]

elaborated a bit more for your convenience.

That's why good asset allocation based on risk tolerance is important. Even during depth of 2009 crisis 50:50 stocks and bonds had less than 25% draw-down. If one is still uncomfortable 25:75 had less than 10% max draw down. You are advocating shorting, which has unlimited loss potential.

 

[contra]

Also, considering the future of America....I guess you have to speculate on whether America will have higher tax rates or lower tax rates than today?

Which would be one of the deciding factors of whether you would go with a Traditional 401k or a Roth 401k?

 

[srinir]

Also, considering the future of America....I guess you have to speculate on whether America will have higher tax rates or lower tax rates than today?

Future tax policy prediction is crap shoot. You have to make decision based on the information on hand. Generally assumption is that your retirement withdrawal income will be less than your average working period earnings. Even with slightly higher tax rates, you would be still ahead because of tax free compounding growth.

 

[sle]

One more consideration - 401k is exempt in a bankruptcy.

 

[dozu888]

instead of worrying about market tops/bottoms.... at this age priority number one is get your earning power up... way up!

making 50k? figure out how to make 100k.
100k? figure out how to make 200k

and so on.

that is by far the game changer, instead of wasting effort to time the market.