Is A 401(k) Really A Good Retirement Plan?

Patrick is in Ohio hi Patrick welcome to the Dave Ramsey show good afternoon Dave how you doing this afternoon better than I deserve what's up in your world I think they ask you a two-fold question I've uh I've worked at 3:43 on companies and they did have 401ks but none of them had a match and the people I've been in the one I've been and I was in one for a little bit and I got out of it I didn't think it was doing real real well and some other co-workers said the same thing and they drop theirs and I was just wondering if if it's always a good thing to be in a company 401k that maybe doesn't matter you don't feel that the performance is good and my second question is is government's always in our business but what what happens if the government offered some type of of retirement where we were able to put something in tax-free attached the bird and we had a guaranteed 4% I know that's not you know a six to a 12% that maybe after a historical return of you know over years but it always tucked away at never lost and it would give people confidence to put something in because they would see it maybe always growing versus that it's up one month and down the next well that doesn't exist unless you're talking about some kind insuring me today the government doesn't have that sounds like you really wouldn't really don't whatever if you put it you just pull up a calculator online and put in a hundred dollars a month at 10% or 12% and then put in a hundred dollars a month at 4% and you'll see real quickly why you don't want to do that it's a bazillion dollars difference I mean it's not four times as much it's a hundred times as much because when you're talking yeah when you're talking about compound interest it works on a curve it does not work on a straight line and so you know 12% is not three times as much as 4% it's more like 30 times as much and so it blows your mind how much a few percentage points makes so you would never take that low percentage as far as the 401k goes here's the thing to remember the 401k itself is not an investment it is how the investment is treated under Section 401 K section 401 subsection K of the IRS code meaning that you're allowed to have money taken out of your check and put into an investment pre-tax and then it grows tax-free if it's a Roth 401 K tax deferred if it's a regular 401 K now what's been underperforming is not the actual 401 K it's more like the code that is keeping the investment warm it's the investment inside the coat that sucked if you had an underperforming 401 K what you really have is an underperforming investment in your 401 K does that make sense what do you mean by that okay pretend I could pretend like pretend like there's a cookie jar and that's the investment with the cookies the cookies in the cookie jar are either good or bad the jar doesn't determine that the jar is just where you park the cookies that makes sense yes you get up peanut butter cookies you could have sugar cookies you could have chocolate chip cookies and they could be good cookies or they could suck but the jar didn't cause any of that to happen the jars just where you have them the 401 K is the jar the investment is the cookies so we basically three places I've worked that they didn't really have the right and best or you didn't pick the right ones from the ones that they offered why there was four on each one of them now there was four there are four general portfolios on each one of them and you picked the wrong portfolio but you probably could have gone even inside of those four portfolios meaning they had a they had a low risk a medium risk and a high risk or something like that and that high risk I've had a group of mutual funds in it that would have sounded a lot like what we tell you to do and you would have done a lot better had you been in that versus the one you were in and so what you're looking for is you're looking for mutual funds inside the 401k whether there's a match or not a match is helpful obviously because it's freaking free money but you're looking for mutual funds inside the 401k that have a good long-term track record and I personally in my 401k here at my business do this and I recommend that other people do the same thing that you put it in four types of mutual funds growth growth and income aggressive growth and international and that's the cookies okay that's the you summon a chocolate-chip cookie you want some peanut butter cookie you want some sugar cookie and so on right some Oreos or whatever I'm just making this up as I go here but the pup the bottom line is is that you're trying to get different kinds of investments that have good long-term track records and they fall under the heading of growth stock mutual funds in side the 401 K you can also do that inside a Roth and if you don't like the options that your company has available to you to invest inside the 401 K and there's no match then you could go to a just a Roth IRA do the exact same thing and pick from any of 8,000 mutual funds so certainly you could get a good one that way and if you need some help doing that or even selecting the stuff inside your 401 K the people we recommend in the investment world we call smart Wester pros and if you go to smart investor at Dave Ramsey com click on that it'll drop down a little filling the blank thing you fill in your stuff it'll drop down a list of the people that we recommend in your area the smart investor pros and then you can sit down with them they'll have the heart of a teacher not the heart of a Salesman and you'll hear stuff very similar to what I just outlined to you here and you know the different different types of mutual funds that have long track records growth growth and income aggressive growth and international

Channel: The Ramsey Show - Highlights

Views: 625,644

Rating: 4.8764186 out of 5

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Id: blkgl67-zwQ

Length: 6min 35sec (395 seconds)

Published: Wed May 06 2020