Betting On Your 401k/IRA For Retirement? You’re Gambling On a Dead Horse

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If you were born between 1946 through 1964, you’re a BabyBoomer. Born in the first 10 years of that range?

You’re anticipating retirement — retirement is imminent — you are retired — or you can’t retire due to finances.

It’s my opinion there’s a huge new class emerging. Americans who will either never be financially able to retire — or retire on a similar budget to the one on which they lived while a young adult, in the infancy of their career. They’ll be movin’ in with younger family, most often one of  their kids, or dependent upon their financial help. For the most part, they were responsible, hard working, tax paying Americans. They were told the retirement for which they yearned was within their grasp, if only they opted to go all in on their employer’s retirement plan — a 401k.

Again, in my opinion, history will show the 401k to be a decidedly significant factor in the epic fail of an appallingly sad last chapter for a large segment of the BabyBoomer generation. The IRA and it’s various iterations are equally guilty.

Every year for awhile now, a steadily increasing percentage of the conversations I’m having with folks, have one thing in common. They’ve been contributing to their employer’s 401k plan for 15-30 years. Yet, they realize it’s been for naught. Though a few hundred grand seems like a lotta money to most, imagine you’re 52. You own your home, which, Lord willin’ and the creek don’t rise, will be debt free at 65. You have around $3-500,000 in your 401k.

The phrase ‘screwed the pooch’ comes to mind — and it ain’t funny.

The first reality hittin’ your forehead like a sledgehammer is that your plan to retire before 60 has been shredded. In fact, what’s really keepin’ you and your better half up at night is wondering if you’ll be able to quit workin’ before you’re 70. It won’t make ya feel any better, but you’re rowin’ a very crowded boat. You’re not alone by any means.

Fact: By the time the typical American man is tasting his 57th birthday cake, he has considerably less than $100,000 in his 401k.

Fact: IF he owns a home, and IF that home is debt free at retirement? He’ll be working ’til he physically can’t work any longer.

Fact: He has the next decade or so to figure out a better way.

Picture retirement with a free ‘n clear home, Social Security, and an ever dwindling savings account.

What I’m so desperately trying to tell you, is that there’s a virus inside your retirement plan. It’s called a 401k, sometimes an IRA. It will not get you to retirement. It’s a virtual lock to fail. The average return for the typical American employee’s 401k the last two decades is less than 3.5%.

Stop reading a minute and ponder what that means for your retirement. It means you won’t be retiring.  I wish there was another way to say it, but the BabyBoomers have been colossally, expertly duped. Using the bait of relatively meaningless tax deductions annually, the government has purposefully arranged to reap the benefits of your hard work AFTER you retire.

They give you $1-4,000 in tax savings  a year. Even if you built your 401k to a million bucks — you won’t, but let’s say you do — and you figure how to safely generate a 7% annual yield — you won’t, but let’s say you do — that’s $70,000 a year. If it took you 30 years to get there, you saved a total of $90,000 in income taxes.

At $70,000 a year, a laughable return from a 401k in retirement, you’d be paying at least $15,000 a year in state/federal income taxes. In other words, in just six years you’d pay Uncle Sam the same amount you ‘saved’ in the 30 years it took you to get there.

Why would you do that to yourself on purpose?

Of course, the reality is even worse. Even if you managed to retire with $1 million in your 401k, you simply are not gonna find a safe yield of 7%. Today, the people who’ve been told by their company’s retirement plan advisor for the last 20-30 years to expect a 4% yield? They’re now figuring out how they can live on the $20,000 a year their 10 year Treasury Bond is now yielding. That is, before taxes.

It’s best to realize sooner rather than later, that in the race to a magnificently abundant retirement, the 401k is a dead horse.

I’m here to tell ya that if you can’t use real estate to slaughter the results of a 401k beginning with only 50% of your 401k’s current balance, something’s wrong. Our guy above, with a $350-500,000 401k balance at 52 years old? He can generate a retirement income from real estate using just $175-250,000 — 2-5 times what he’ll end up with if he remains in his 401k with twice the money. In fact, given that range of beginning investable capital, he’ll be able to generate a retirement income anywhere in the range of $55-74,000 a year — using real estate as his vehicle.

Note: I’m using half the balance of the typical 401k not only to make the point, but because that’s about what you’ll net after taxes and penalties if you opt to unsaddle that dead horse and get out.

Using the 4% yield the advisors at most companies tell 401k owners to expect in retirement, the average American worker would need to retire with a minimum 401k balance of, give or take, $1,375,000. And for the record, that would generate only the $55,000 at the bottom of the real estate income range. Not to worry though, 99.9% of Americans with 401k’s are never come within shoutin’ distance of a seven figure 401k. Not gonna happen.

“Not freakin’ likely,” says our friend, Captain Obvious.

Don’t be discouraged. You can turn things around. But ’til you stop bettin’ on a dead horse, your retirement is less likely to become reality each passing year.

Give serious thought to switching horses. Yeah, in the middle of the stream. Get back in the race. Your dead horse ain’t goin’ anywhere. Well, that’s not entirely true. Your 401k is quickly turning you into a statistic. You’ll be one of the millions of BabyBoomers either workin’ ’til they can’t any longer, or hoping their kids can help ‘em.

The moral of the story? Dead horses don’t win races.

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About Author

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.

73 Comments

  1. Love the idea of taking control of your own retirement. You are the ceo and can ensure your retirement funds are used properly and that you get solid growth year after year. The stock market has become so news driven and the 1-4 percent swings are part of the norm nowadays. If you can do it correctly you can get great returns yearly and even some appreciation. Reinvested dividends, year after year profits and time will get you to retirement.

    • Jeff Brown

      Hey Jim — If you can pull that off for 20-30 years, you’re part of a very impressive, very small minority of stock market investors. I’d say far less than 5% of folks can even approach doing that. Most stock BROKERS for Heaven’s sake got nailed in the last correction. I tip my hat to your skills, Jim. Good luck.

      • I see how you confused what I was saying…I was agreeing with your article and saying that by taking total control of your investments you have a better chance of succeeding if done correctly. Control your own retirement with rental property(among other things) and I think you have a better shot at long term success.

  2. Jeff

    You wrote: “At $70,000 a year [$1 million earning 7% per annum], a laughable return from a 401k in retirement, you’d be paying at least $15,000 a year in state/federal income taxes. In other words, in just six years you’d pay Uncle Sam the same amount you ‘saved’ in the 30 years it took you to get there.”

    If that doesn’t just sum it up perfectly, I don’t know what does. Makes me want to take a very hard look at my IRA and wifey’s 401K of 20 years and whack ‘em both. I am not going to tie up another 20 years of money until the government tells me it’s OK to touch it.

    Rob

    • Jeff Brown

      You hit the nail on the head, Rob. If Wifey’s balance is relatively high, she can kick some major bootie investing for her own account in real estate. Another 20 years? She’s golden in real estate.

  3. Jeff Brown, I am so impressed with your blogs each week. I am 30 years old with one SFR long term hold so far. Can’t wait for your seminar in Denver!!!

  4. Troy Chowanec, ABR,GRI, RE/MAX Realty 100 on

    Jeff,
    Great post I agree with your arguments. However, there may be ways to convert an IRA into a real estate investment without the heavy penalties you reference. If money is rolled into a self directed IRA and real estate is purchased outright or using a non-recourse loan by the IRA, it is my understanding, that these penalties can be avoided. I dont know of any financial planners that promote this because there is nothing in it for them. Most people have not heard of this because it’s not a very mainstream, and there are very few lenders that offer this product. Imagine the power of this type of investment vehicle if it was done with a Roth IRA! Happy investing!
    Troy

    • Hey Troy — I’ve been putting clients into income property via their self-directed plans for years now. Thing is, it’s only better than doing nothing. 40-50% down payments. Interest rates about 1.5% higher than outside the plans. 25 year ammos on top of all that.

      Roths? Don’t trust that the gov’t won’t be coming after them. They’ve already authored a bill shortening the tax payment time from 25 to 5 years for heirs to IRAs. It’s my view that bill is merely a precursor.

      An investor with about $130-140k can acquire $500k in property. It’ll get the IRA investor less than $300k, due to reserve requirements. Magnify that difference over 15-35 years and the difference can, and almost always will, be the difference between a ho hum retirement, to a magnificently abundant retirement.

      It’s not even close. But again, I get your point. It is better than nothing.

  5. The key advantage of a 401k is that you don’t pay taxes now so that you have a larger balance to grow your account with. If you are taxed now, you will have less capital to start with and any earnings along the way will likely be taxed as well. For example, any time you receive dividends in a 401k, they are not taxed and you can reinvest the full amount to generate more returns rather than only being able to reinvest the amount after taxes. The effects may be small short term, but compounding over 20-30 years can make a large difference in your 401k balance and should be a factor in determining if it’s worth having a retirement account.

    Also, your example of taking only six years to to pay the same amount of taxes “saved” over 30 years occurs only because you’re using optimistic values, like you said. So say if you weren’t so optimistic, such as a 500k balance instead of 1 million. And a yearly return rate of 3.5% (assuming you’re not withdrawing any principle like in your example), you’d be earning only 17,500 vs. 70,000. Assuming the same tax rate you used (15,000/70,000 = 21.4%), which it would be lower since you’re making a lot less income, you would be paying 3,745 per year in taxes. This would equate to about 24 years to equal the amount of taxes saved during the 30 years of 401k contribution.

    • Jeff Brown

      Hey Jon — You’re exactly right on both points. I was exaggerating, as I clearly stated, and your tax figures on what might really happen is on the money.

      ‘Course your numbers make my point even more brutally. Imagine all those years for ‘retirement’ income likely less than their anemic SS payments — and that’s before taxes. I wonder what our imaginary retired couple would say once they learned 30 years of investing in the heavily promoted (by gov’t and Wall St.) 401k was gonna deliver a whopping $17,500 year before taxes?

      “Wow! Winner winner chicken dinner!” NOT. Turns out in this example the ‘key advantage’ was a huge ‘gotcha’.

      Good stuff, Jon — thanks.

      • Jeff,

        It is unfortunate that after 30 years, people still may not have enough income to retire off of. I was drawn to this post because I too was trying to decide how much to contribute to my 401k if it was worth contributing to it at all. I personally think it’s a balance of where I feel comfortable keeping my money (stocks vs. real estate) and currently I have it split pretty evenly. I really appreciate your post though as I had real trouble finding anyone who was willing to argue against the 401k.. it seems as if everyone just assumes it’s an investment vehicle everyone should have without any doubt.

        Thank again

        • Jeff Brown

          Here’s the key ‘info clip’ telling the sad, long term truth about 401s.

          Hey Jon — Dalbar, the highly respected firm that has tracked the performance of 401s since their inception, reported this:

          The last 20 years, the average employee’s 401k — over the last two decades — averaged under 3.5% annual yield. My memory is a bit hazy, but I think the most recent number is somewhere around 3.17%.

          Get. Out. Now.

          What amazes me is how the various advisors at all these firms can be in public without their faces glowing red 24/7. Under 3.5% for the last 20 years? And they’re still listened to by hard working Americans every day. Absolutely incredible.

  6. I’m 30. I’ve shown the article to a few baby boomers I am close to, hoping to open their eyes a bit. You wouldnt (maybe you would actually) believe how upset and immediately defensive they both got. Shocked me.

    • Jeff Brown

      Try given’ ‘em my number. :)

      Seriously though, I get that reaction all the time. But since my conversations are almost always initiated by them, we get to the bottom of the reality barrel. They weren’t really being defensive, George, they were covering fear. The sad part is, they should be scared. That’s almost always the first step to finding and executing a real life solution.

      See ya in Denver, George.

  7. Jeff,

    This question has been bugging me for a longtime and I would appreciate your input.

    My employer will match 50 cents on the dollar for contributions up to 6%. I do contribute the 6% and then everything else goes towards the down payment for the next rental house purchase. I think putting anything above 6% into the 401k is foolish since I can make a boatload more with rental property.

    So what is your view on the 6% contribution, keep doing it or give up the automatic 50% return on my money and stop 401k contributions completely?

  8. Jeff Brown

    Hey Ryan — My experience says if I were you I’d stop contributing period, even if your match was dollar for dollar. Employer matching is nearly universal, yet what I’ve written about still remains the norm. Why? Cuz it’s simply not working. The advice given employees hasn’t resulted in retirement success, no matter how it’s spun.

    I’m gonna see if I can’t prevail upon my ‘in-house’ expert to chime in here. I strongly recommend you have a serious conversation with him. His name is Dave Shafer. He’s the most knowledgable pro I’ve ever met when it comes to EIULs, and how/why 401s fail so predictably, and on such a large scale.

    Get out, Ryan.

    • Don’t forget to read the fine print of your 401K as well. While companies may offer matches, they often have a hard dollar limit. You may think they are chipping in 6% and getting a 3% match, and not realizing the hard dollar limit makes it more like 1.5%. Why do companies do this? It makes it easy for their accountants to tabulate annual liabilities. Multiply total number of employees by total dollar limit of 401K match = total company liability. All this while they say “we are generous” when recruiting new employees with a straight face.

      Is it really worth it to tie up such a small chunk of change into those ornery rules and high fee mutual funds?

  9. David Shafer on

    Ryan, investing in mutual funds inside the 401K wrapper hasn’t worked for a variety of reasons.
    You are always better off putting your money into strategies that do work. Don’t let the match cloud your judgement. It’s like going to the store and seeing an item on sale big time. But, if you never really wanted the item, then why buy it? And items that are heavily discounted are usually cheap for a reason; not generally because they are great products.

  10. I have been pondering this question myself—enough so that I went back and figured out the average annual return on my 401k (Fed Govt. TSP) since I began investing in 1995. It actually turned out not to be too bad—10% average return in stocks and 7% average return in the bond fund. That’s about the same return as I get on the money I have invested in real estate (taking only income generated rather than property appreciation into account). For me, I decided it makes sense for me to stay put in my company 401K (putting in only 5% a year in order to get equivalent 5% match) in order to be diversified in my investments. On the other hand, I did finally sell off the “turkey” stocks and mutual funds I held for years—losing money or generating very little return—and using the money for the down payment on three rental properties. It was a very wise decision.

    • Hey Tamara — Those returns are 2-3 times what is typical for 401s. Sounds like you are a cut above the average employee-investor. Your results are impressive. Why change? I can’t resist saying though, that it’d be my contention I could take half your current balance and end up with more net worth, and far more retirement income than your plan would, in the next 20 years. :)

  11. Kimberly Taylor on

    Jeff, this sounds like a great alternative to traditional retirement funding and both my husband and myself checked into it since we found a another rental property that we wanted to purchase (we already have two) but ran into a problem. The contact person with the company that holds my company’s retirement funds is telling me that in order to put that money into real estate, the property has to be reappraised EVERY year (forever). He said it is a rule with the Department of Labor. Does this sound right to you? Why would they make you do this EVERY year for life? An appraisal may not sound like much but it would cost me around $450/yr (a much greater amount over a period of decades) and that isn’t money I can afford to lose.

  12. Hey Kimberly — I’ve not run into that ever. I’ve done this for clients with self-directed plans. You may be talking about a plan that definitely is not self-directed. I can help with this if you wanna talk. Company plans (read: the Wall Streeters they hire to run it) don’t want you investing in anything but what’s on their shelves.

    • Hey Kimberly — First, thanks for your patience. I was in Texas on a ‘boots on the ground’ trip. Anywho, here’s what my in-house guy said:

      “I can answer that a couple of different ways. First, with an IRA, an annual value of the IRA must be made to the IRS. With a self directed IRA, the custodian will typically ask for an appraisal; however, they will ALWAYS accept a comp. The client does not need an appraisal or that expense.

      With a 401k, there are no annual reporting requirements unless the plan has more than $250,000 in assets. SO, if the client has nowhere close to that amount in assets they don’t need to worry about it. IF they are close to that amount (or just want to be thorough), then it would be in their best interests to secure a comp, as well. A gain, they don’t need an appraisal, just some thing that is vamoose to show value. If the 401Ks assets are more than $250k, they need only report the value through a 5500EZ form. Obviously, it is not a taxable event, rather just reporting the value of the plan. The 5500EZ can easily be done by their accountant or themselves.”

      There ya go, Kimberly. Like I said, I’d never run into ‘an annual appraisal requirement’ with anyone.

      Hope this helps you. Have a good one.

  13. Kimberly Taylor on

    I would welcome and appreciate your help. When I talked to the guy, he asked if I was talking about self-directing those funds and I told him YES. But after the conversation, I was thoroughly confused (and a little irked) about the yearly appraisal rule. I really started thinking that it was his way of getting me to reconsider moving my investments (and I still do). He told me he would need to do some research and will call me back in the next couple of days. I need some guidance…. I know they are going to try to get me to reconsider so I’m afraid they’ll tell me anything to change my mind. I have looked over the Dept of Labor rules but you might be able to tell me some things I need to know. Also, do I need to open a self-directed IRA account at my bank to transfer those funds into? (I’m not sure if I am supposed to go ahead and do this now).

  14. Kimberly, I’m wondering if he wasn’t talking about a ROBS strategy (Rollover on Business Startup). ERISA rules seem to require an annual valuation of the company because the Profit Sharing Trust that’s created in a ROBS structure needs to report it’s value. I’m not affiliated with either company but SD Cooper and Guidant Finance both have programs utilizing this strategy. SD Cooper handled mine.

    • Jeff Brown

      Hey Liz — Considering the dismal lack of results, I’m not sure that’d be worse.

      On a more serious note, there are several things you can do. First thing is to take control, stop accepting the ultra limited menu off of which most work operate while investing through their 401Ks at work. Then it’s a matter of your comfort zone, and ability to prudently invest for the long term. Real estate has been the source of more millionaires and solid retirements than most (all?) other sources. It’s why I get dead silence back whenever I challenge folks to find just one person in their periphery who’s retired — well — from their 401k. Over the last decade I’ve spoken with hundreds of people about this. I’ve talked with around four who retired well off their pre-tax qualified retirement plan. Four.

      We call that the exception proving the rule.

      Liz, what most don’t really get, at least ’til they do it themselves, is that real estate investing is pretty boring, has it’s ups ‘n downs, and isn’t, for the most part, glamorous. What it does do is produce results — IF — you’re not tryin’ to get rich quick, or any of the other nonsense we all see out there.

      You can get to a better than decent retirement income, Liz. You just hafta do it on Purpose, and with a Plan.

      Make sense?

  15. Jeff,

    I read your post and while I am happy to have come across it and get educated, I am very sad at the cruel reality. I’ve been working for about a year (I just graduated) from College. I have been contributing to my 401k since I started working and somehow I got a 10.58% return on my 401K (one year later). Obviously I am not savvy when comes to investments; I usually check my 401K and re-assign the allocations based on how the investments are doing. I guessed it pay off – for now; but after reading your post I do not want to base my retirement on 401K only.

    I have a real estate question for you: I own a house that I rent; I end up loosing $200 monthly all costs included – taxes, fire insurance, condo fee, mortgage, property manag. commission. Should I get rid of the house (short sale)? 1 yr ago I planned to stick with it and ride the house melt-down, but the house lost 27% of its value so I am not sure I’ll ever get it back -forget about make it an investment. (I don’t live in the house because I my job is in a different state. Currently I rent).
    While I love the idea of owning rental I think you’ll get most of it if you manage it yourself rather than paying a property manager. Add to that the fact that the house is underwater and I think I got myself a bad deal.

    Should I short sale the house and get a home that I could live in and than look into buying rental rather than holding on to a house that is underwater and hoping for anther great return on my 401k?

    Thank you

  16. I might have missed it but I did not see one comment pertaining to the fact that when the market takes a dump 401 values take a dump right with it. As our economy turned to crap I watched the value of mine plummet, bleeding out value faster than the contributions going in. It’s not just the return rate folks should worry about. A decent return rate on a seriously devalued fund is of no more use than a low rate of return on a high value fund. At present looking at how much I paid in, and my employers contributions verses current value I’m still showing a loss in the thousands of dollars range. In short even with my employer’s contributions and the taxes taken out I’d have actually come out further ahead just letting the money sit in a savings account.

  17. So you are saying to invest in real-estate ? How do you take 401k money and invest it in anything but whats in your plan? I don’t know much about this. 50,000 in 401k @ 27yrs old.

    • One approach is to take an early withdrawal from your 401K, pay the taxes and penalties, perhaps 50%, and then use what’s left to kick off a real estate investing plan.

      $50,000 in a plan could very well lead to $25,000 after taxes and penalties. That might be enough to buy half of a duplex. This is where you would have to call Jeff Brown to get into more specifics, but that is the basis of what he’s suggesting.

      Also think about how much you are pouring into your 401K with every paycheck. Imagine if you rerouted that into your RE investment plan instead. Using rent + former 401K donations would pay down the investment mortgage fast. Then in the future, you could sell it, get back your equity, and use it to buy multiple properties.

      Said you were 27? Imagine doing this for 40 years. You could build an empire with that time frame. Most people don’t realize their 401K plans suck until they get into their late 30s/early 40s. You would have the jump start and only pay $25,000 in taxes and penalties. When I started, I had much more in 401K money, and hence had to pay a much bigger penalty to do just that. But I’m glad I did.

    • Jeff Brown

      Hey Kyle — Greg’s right, but with one huge caveat. Sounds as if your 401k is the one with your current employer. That money is usually, relatively speaking, untouchable. You can borrow up to half of it, but you’d have to pay it back in 5 years.

      Send me an email with your availability and we’ll chat. At least I might be able to point you in a productive direction.

    • Jeff Brown

      Hey KP — It’s not so much what return you should aim for, but what vehicle you wish to use, and how much retirement income you wish to generate. The yields will be the yields at any given time. If you have some time, I’d love to be able to point you in a helpful direction.

  18. In my opinion, this article is extremely misguided when it comes to real estate. People who hardly have enough time to manage their own 401k should stay far away from investing in real estate as a means for retirement. It’s amazing how people still believe, after the real estate bubble, that a house is an investment vehicle. Retirement savings are simply just that, conservative savings for retirement. One should not commingle such assets into real estate properties. It’s one thing to diversify your portfolio if you have a few million, but to recommend those with a meager 50-500k to take a 10% penalty and pay taxes, to then flip it into rental income properties, is just ridiculous. Sure, some people can make money, but for the majority of us, who lack the experience and the investment portfolio, this is incredibly risky and a quick way to lose money on many of the real estate fees that arnt even mentioned in this article. What about property taxes, mortgages, utility fees, brokerage fees, etc? My advice is for people to invest in low fee investor funds and try to remember that these hard earned savings, while they shouldn’t be invested in a “dead horse” shouldn’t be bet on the so called “favorite” either. It’s a suckers play. If anything, we shouldn’t be using thr phrase “betting” when it comes to retirement savings anyway.

    • Jonathon, those fees that you talk about are taken into account when doing proper real estate investing metrics. Real estate investing is not for everyone, but neither is investing in mutual funds as the results indicate. Might want to educate yourself on risks such as “sequence of return” risk, inflation, etc. that go hand in hand with mutual fund investing.
      This site has plenty of information and guidance about real estate investing that can help you understand that process and determine if it is for you.

    • Jeff Brown

      Hey Jonathan — David saved me most of my answer. However, I’d point out that if IRAs/401Ks were providing universally effective results, I couldn’t have written the post in the first place. Boomers are waking up in near panic all over the country due to the dismal performance of their so-called ‘qualified’ retirement plan. The only folks who’re racing to an income rich environment with IRAs and 401Ks are Wall Street brokers and Uncle Sam.

    • Jonathan,

      I don’t have time to manage a real estate portfolio. That’s why I have a first rate property manager to handle it for me. I have Jeff who found me too quality duplexes, a first rate home inspector, and a real estate savvy CPA. Combine that with Dave Shafer as my EIUL advisor, I have a great team. The rent is rolling in, values are slowly rising, and I have a good supply of cash in the event that something goes wrong. My net worth has only been growing since I left my 401k behind. Stock market dips don’t make me worry like they used to (except for my company stock option).

  19. I’m 58 years old and have about $525K in my target retirement account. My wife should have another $100K + in four years or so. My wife and I have just purchased our first investment property out of state and hope to be renting it shortly. In a year and a half, (at 59 1/2) I would like to use some of my retirement fund to purchase a 2nd home in the same area. (a good trusted friend of ours has a number of properties there and will be our property manager) In 4 years, we plan on selling our present home and moving into the 2nd home. (we should end up $100K in the black on the sale of our present home) My wife suggested we buy the 2nd home with cash (from my IRA) in a year and a half, but this appears way too costly to me and doesn’t appear to make sense financially. I’m also not comfortable with losing that large a chunk from our nest egg. Any suggestions?

    • Jeff Brown

      Hey Mookie — There’s not nearly enough data for me to make an intelligent foray into your plan. I’d hafta check with my in-house expert on whether or the tax hit you plan might generate via your 401k. Though you don’t say, I assume neither one of your plans are Roth, which makes some of your plans stickier.

      I’d love to talk with you so that I could more thoroughly understand your exact scenario. Also, I’d be able to put you in touch with an expert or two who would give you information on which you could absolutely rely.

    • When you’re 59 1/2, you can withdraw with no penalties. If you pull out the cash to buy real estate, you might have to pay the taxes on it, but imagine the benefits of using depreciation and collecting rent.

      • Jeff Brown

        Hey Greg — Accurate, but the taxes will be paid at that time, assuming they’re not in a Roth. There are exceptions, but very few. Many people mistake the word ‘penalties’ for taxes. :) As you know, in some cases not only are taxes due, but then the 10% penalty is added on top — sort of insult on injury.

        You made an excellent point.

  20. At 59 1/2, I won’t have to deal with the penalty but I’ll still have to pay tax on whatever I take out (as income; up to 35%).

  21. I am 24 and my return on investment so far after 1.5 years is 12.17% after investing agressivly in my 401K. I am looking to purchase a house soon and hopefully more real estate in the future if financially possible. Hopefully it all pays off. I was thinking about investing in a seperate IRA as well but I would rather not tie up more money until 59.5 and possibly regretting the decision after 20 years. I understand an IRA gives you more freedom on what you are investing in. Any thoughts?

    • Jeff Brown

      Hey Patrick — I’ll answer with a smart aleck question.

      Will you be able to foresee all the 2008 crashes before they happen and save your years and years of investment success? If not, I’d rely on something else.

  22. It is unfortunate that so many people are buying your snake oil. I am 41 and started investing in a 401(k) starting in 2000 – for about 13 years so far. I chose an index fund that tracks S&P 500 and more recently a small cap index. I contribute the maximum allowed by law each year (17500 in 2013) and my employer matches the first 6% dollar for dollar. My current balance is a bit over 700K. The only thing I did is to continue investing steadily with no changes during the recessions of 2000 & 2008. I calculate that I will have well over 4 million (in today’s dollars) in the 401(k) by the time I retire at 65 — assuming a 6% average return over inflation (I was doing much better than this over the last 13 years).

    • KR, maybe I am asleep still this morning, but according to my calculator, assuming $2000 month total inputs [your and your employers match] over 13 years would require a rate of return of over 11% to get over $700,000.

      So what index fund have you been investing in that got double digit returns for you over the last 13 years after expenses?

    • According to the Dalbar Report, your long term savings rate will be around 3.1%. Go any higher, and you are assuming you can beat the odds. Assuming you can continue putting aside $2000/month, in another 24 years, your $700,000 will turn into $2.3 million. At the industry standard withdrawal rate, I figure you will get $92,000/year. That would be $7666/month. After an assumed 25% federal taxes (and assuming no state taxes), that should leave you $5750 a month. Probably no more mortgage interest deductions. I’ll assume no more kids to deduct either. Heck, not sure I see any deductions to slim down your tax profile at that point. So, will roughly $6000 in 2037 dollars cut it? If inflation were 3% (and I emphasize if), that would be equivalent to $3000 in today’s dollars. Is that sounding as good? Maybe you can increase it. But maybe something happens in the next 24 years that demands a withdrawal. Things can swing either way. Built your contingency plan?

      Frankly, I don’t like testing whether or not I can beat the odds. Dalbar has shown that year after year, for 20 years in fact, that people average a new nickels above 3% in annualized savings rate when investing in mutual funds. Instead, I prefer that my wealth building plans use the odds, not defy them. The rich have historically shown that when you invest in leveraged real estate, business equity, and cash flowing assets, the odds are in your favor. Whether or not you agree with the rich, history demonstrates that they seem to know what they are doing. So I’ll take their advice, not the advice of a financial adviser, which according to research shown in “The Millionaire Next Door” don’t have a a good track record of accumulating their own wealth. If they can’t accumulate their own wealth, how the heck can they help me accumulate mine?

      • Greg,
        Over the past 20 years, the stock market returned 11%, not 3.1% (http://www.moneychimp.com/features/market_cagr.htm). Assuming your 3.1%, the 25% you are taking off that $7666 is wrong as well. That is the marginal tax rate. The amount you should subtract is the effective tax rate. 2014: First $9075 is taxed at 10% (but you get a tax deduction so it works out to 0 taxes)., next $27825 is taxed at 15% ($4173 in taxes), next $52450 is taxed at 25% ($13112 in taxes) for $17285 in taxes on $90k/year (a 19% effective tax rate=$6209/month). If the bloggers here are going to spout out “facts” make sure they are correct please.

        • Well, my own analysis of the S&P 500 for an average of all 30-year windows between 1951 and 2010 says:
          Avg geom mean (aka CAGR) = 7.17% (5.14%..10.05%) 68% chance between 5.66 and 8.68
          See my source of data at https://github.com/gregturn/finance. I admit that my data could be skewed, because the S&P500 didn’t come into existence until 1957, so there are six extra years that I’m not sure how my source got. I don’t know how your link can go back to 1871 and extrapolate that, given that the members of the S&P 500 change from time to time.

          But I specifically cited the average performance of investors, not the market, which is what the Dalbar report covers. The difference being that investors come with an extra set of factors like biases, psychological reactions to market corrections, and other things. The market may do one thing, but investors do another. So it’s important to look at what investors have been doing over and over and over and over for the past 20 years. And according to report I cited in another report, they aren’t racking up big bucks in their retirement plans.

  23. Hmm.. I think this article is rubbish. Not even evidence, and in fact way too much bias involved. So are you telling NOBODY has ever successfully retired from a properly managed 401K/Roth?

    • Jeff Brown

      Of course, nobody’s ever said that, including me. I’d appeal to BP readers to present how many folks they know, first hand, who’ve retired with 401k income allowing for a very nice, and active retirement. Every time I’ve asked folks for this the answer has been silence.

      I’ll bet you know dozens!

      • Jeff,

        Can’t list dozens but I know of one, me. Been diligent with company matched 401 since 1990. Average rate of return for 23 years is better than 12 percent which as an investor I’m sure you know covers a couple market corrections. I have managed in the past 13 years to lose 30 percent of the value of my home, which I own not a bank. Age 50 metro Detroit area. This loss can be directly tied to unscruplous real estate investments and mortgage brokers that backed them. Considering the match and tax advantages, I think your providing inaccurate advice on 401 benefits.

        • Rob, you missed your calling. a 12% average return [not a great stat for investing] is higher than the S&P 500 got over that time period not including any expenses. Not quite as high as Warren Buffett [16%] but higher than the majority of money managers over that time period. Congratulations. But, you are hardly representative of average mutual fund investors. By the way, what mutual fund[s] have you invested in to get that great return?

        • Jeff Brown

          Rob — Even you’ll admit you’re the exception proving the rule. You’re insanely better at stock picking than 99% of your neighbors. You don’t know very many — if any — who’ve done what you’ve done. You did poorly in real estate in Detroit? Quick, stop the presses, we have a scoop. :) Was the bubble and subsequent burst caused by horrible underwriting, and unscrupulous pros? You bet it was. Another scoop. Lord knows they learned how by watchin’ the paragons of business virtue on Wall Street, right? :)

          I’ve literally met or know of countless regular folk who’ve retired well via real estate investing and/or notes. It’s so prevalent it’s become a cultural cliche. It’s not debatable.

          You’re not only exceptional at what you do, Rob, you’re the exception to the rule. The way you chose to retire well is, paradoxically the reason most Americans are retiring poorly, or not retiring at all.

        • Gentlemen,

          I get that your trying to sell a service here, good luck to you!

          I just disagree with telling people to not participate in a Company matched 401k when it provides a 100% return and a tax advantage (can we agree on 28%?) the very second it is deposited.

          If i invest with you today, are you planning to add matching funds into my account? I seriously doubt it.

          Real Estate investing may provide great returns, but the first X% should be invested to get the company match on any sponsored 401K.

          David … I will not provide specifics for obvious reasons, but my portfolio is a mix of Company stock, mutuals and bonds. I will concede that the company stock performance presents a significant advantage for me, but most decent mutuals have a 10 year return that is better than 10% and in a group plan expense ratios are very low. Try Vanguard Primecap Admiral as an example.

        • Rob, yes I also sell a financial service. But, what sets me off is when people assume they will do better than average. You retroactively suggested Vanguard PrimeCap Admiral as a good mutual fund, which is was. Yes, it had a 10.5% 10 year return putting it in the top 6% of funds in its category. First, Vanguard funds with low expense ratio’s are rarely in 401K plans. Second we just had two huge up years. The 5 year return for that fund is 22.3%. So are we to assume that it will return double digits for the next 20 years? No, it won’t, especially if you have an end date [when you need the money] that isn’t on the heels of a 32% return. It’s all about the actual time you are in the market. Your original start date ,1991, just happens to coincide with the best 23 year period ever in the market. The 1990s, with its continuous double digit positive returns, might never be repeated. What Jeff and I want to point out is that if your plan has to have well above historical average returns to work, then you might want to rethink that plan and get into one that only requires that you do somewhere around what has been done historically.
          Again, your 12% return is better than twice what the average person received in that same time period from their mutual funds. And you add onto that your time period of investing exactly coincides with the best years to be in the market. Good on you. But bad on anyone thinking that they are going to have the same success as you.

          That is all I wanted to point out.
          As to the match. I have many clients that take the match, but put no more than what is required to get that match into their 401K. Despite the actual data pointing out that [using average investor returns] they would be better off investing their dollars in other strategies.

          And we haven’t even started talking about the taxes you are going to pay on that million dollar 401K.

          Finally, the data on how much people really have in their 401Ks is the final testament to a failed policy of pushing 401K investing on the masses.

  24. This article is ridiculous. I can not even conjure up the notion that even 1% of Americans have the credit to get a second mortgage to invest in buying investment property. Yes, some people who are conservative and make more money than the average middle class (say 150k or more) can and should invest in income property. With that said, the average American family makes 45k year and is barely getting by making one mortgage payment a month and paying all there other bills. So finding the time to take care of the property (or paying a management firm to do so) they would be better off getting a second job to invest more money into a retirement fund. I am a manager at a company that matches 6% to our 401k and I take advantage of the match. I am 28 and have 155k invested into my 401k and have seen a 13% return in my portfolio over the last 8 years. I have not talked to another single coworker who has any where close (not even employes who are 30+ year veterans) to 100k invested into there 401k. So my point is that 96% of Americans do not invest enough, if anything, into there 401k. If people don’t have enough discipline to put away 6% of there income to get our company’s 6% match,and most coworkers I talk to only put $50 a month into there 401k, then how would 90% of Americans realistically have the time, money and no how to even dream about buying investment property. Your article is misleading to the average American and discourages people from investing into there 401k. 96% of the people I have talked to in my life are not disciplined enough to invest enough to money into there 401k to build wealth to retire off of and that is why you have only talked to 4 people in your life that have retired comfortably off of there 401k. The people you talk to are responsible, smart, disciplined and hungry for more money, but they are not the average American. Maybe you should write a article on how average Americans can retire and how to get them more motivated to do so. I think the average American family should be encouraged to invest into IRAs or there 401k because they are not going to have the discipline and no how to buy income property.

  25. Considering 401(k)s have averaged 4%+, why should we encourage people to put more money in one? It’s not just this year that 401(k)s have such dismal performance. It’s the history of mutual funds for the past 20 years. People’s behavior isn’t changing, so why keep going that way? Because this year will be different? You say your company matches the first 6%. Is there a dollar limit on that? What are the fees on your company-provided plan? Do you know? You can’t assume the 401K manager at your company knows. Studies have shown 401K fees to average 2-4%. Kind of kills the performance over the life of investing.

    You said you have gotten 13% growth over the past 8 years. Do you mean total growth, or 13%/year for the past 8 years? And is that arithmetic or geometric mean?

    Currently, people are investing heavily into their primary residences because everyone tells them to. They are paying off these homes, ready to enter retirement with little in retirement funds, but a nice home that has equity. The testimony to this is all the ads for reverse mortgages. People are discovering the only way to get their hands on cash needed for retirement is to pull it out of their homes. But the catch is, reverse mortgages are expensive. Why would so many banks and businesses be selling them if there wasn’t a profit in it?

    If people could simply sell their homes and move into an apartment or rent some smaller place, they would probably reap a better amount of cash and do better than a reverse mortgage. They could opt for an immediate annuity to get some fixed money for the rest of their life. That might perhaps be a better situation than trying to tap their equity through these reverse mortgages.

    But I guess the real question is: has the author, Jeff, actually helped people that DON’T make 150K/year in income? If the answer is yes, then I guess his article is NOT ridiculous.

  26. Am i missing something?

    When i calculate my rate of return for my 401k when using the employer match as earnings (since they did not come out of my pocket, just like a divedend) i get very good rates of return.

    For example, if my employer matches dollar for dollar the first 5% of my salary and for simplicity sake my salry is $10,000.00 The if i contribute $500 my employer will also conribute $500 which means my rate of return for the year is 100%. Even if the market were to drop 30% in that year (and for simplicity I made the full deposit at the beginning of the year) so my $1,000.00 that was contributed is now only worth $700.00, i would still have made $200.00 from “free matching contributions” my rate of return would be 40%.

    Maybey I’m missing something but it seems that rates of return on a 401k with an employer match should consider the match as earnings, not capital invested, and therefore, it would be silly to tell someone not to invest at least to the match of the employer.

    • Jeff Brown

      I’m with ya, George. But here’s the fly in the ointment. It all sounds good, and looks even better on paper. The problem is that of all the people you know at work, your neighbors, and family, you likely know absolutely NOBODY who’s retired with even $4,000 monthly pretax income from their employer sponsored 401k. Wanna know what investment real estate and notes has become more and more popular among those over 40 and their Boomer parents? Their 401k plans were epic failures. If we all knew a buncha retired Boomers living a great retirement based upon their 401k, you ‘n I wouldn’t be having this conversation. Americans are losing their dreams for an anxiety free retirement at the rate of thousands every 24 hours.

      Virtually all of those folks had some sorta match. Ask them what they think about it now. You won’t like the answer. I know one thing for sure, THEY hate the answer, cuz for most of ‘em it’s literally too late, if they’re unwilling to change their thinking. Am I making sense?

      The real life empirical evidence is an indictment on the 401k as a vehicle to a solid retirement.

  27. Jeff Brown

    Rob — I do provide a service, true enough. On my posts, however, I sell principles primarily. We can cuss and discuss company matches into the next century. Yet, it won’t change the fact, that the hugely vast majority of Americans’ retirement, when based upon their company matched 401k plans, suck like a turbo charged Dyson.

    Still, much respect to you for your obvious skills. 12% for over two decades is more than impressive on Wall Street, especially for an individual making their own picks. #hattip

  28. Jeff,
    Incomplete math ($15,000 to taxes is because your COMPOUNDING interest has grown tax deffered) through the entire article and a general disservice to all who are saving for retirement. You ask for examples of successful 401k retirements…seek out the Vanguard Diehards aka bogleheads. I won’t post the forum website as I ‘m sure it would get redacted. People can just google the “aka” above and it will show for them. Please hop on the forum and spout this nonsense. I’ll be waiting, with my popcorn, for the show to start.
    JTDumar

  29. JT — Thanks for the injecting class to the thread. I repeat my challenge. Are you saying those retiring well from their employer sponsored 401k plans are the rule, not the exception?

  30. Yes Jeff, I would say it is the rule. Calling me out on “class”? I call a spade a spade. You wrote: “Not to worry though, 99.9% of Americans with 401k’s are never come within shoutin’ distance of a seven figure 401k. Not gonna happen.”
    Read reports by Kiplinger, Morningstar, etc… For the age group 35-44 62% have 401ks (in just Fidelity most have multiple other accounts) between $50K-$250K and additional 15% have $250k-$500k. With upwards of 20+years left to save, I’d say 77% are going to “come within shoutin’ distance of a seven figure 401k”. Stop speaking platitutes to get webhits and hurting people’s chances of retiring for your own benefit.

    • JT,

      Interesting conclusions. I dug up the Federal Reserve’s 2012 Federal Reserve Bulletin (did so in the past), where they at look at surveys done every three years of consumer financials. Here’s what I’ve seen:

      Median Value of holdings for all families in 2007 was: $47,100 in retirement accounts and $58,700 in pooled investment funds (Table 6.A.)

      Median Value of holdings for all families in 2010 was: $44,000 in retirement accounts and $80,000 in pooled investment funds (Table 6.B.)

      According to that, people have slacked off in a three year stretch in saving in retirement funds. But what if we look at each year across the percentiles.

      In 2007 (Table 6.A.):
      Age less than 35: $10,000 in retirement funds
      36-44: $38,800 in retirement funds
      45-54: $66,000 in retirement funds
      55-64: $104,800 in retirement funds
      65-74: $80,700 in retirement funds
      75-: $36,700 in retirement funds

      In 2010 (Table 6.B.):
      Age less than 35: $10,500 in retirement funds
      36-44: $31,200 in retirement funds
      45-54: $60,000 in retirement funds
      55-64: $100,000 in retirement funds
      65-74: $100,000 in retirement funds
      75-: $54,000 in retirement funds

      What can be read from these stats? Well it appears that from 2007 to 2010, average value of retirement savings funds dropped across the board Why? The survey doesn’t answer that. It could be slump in the market (tied to stock prices). It could be that people responded to the 2008 market crash by slowing their rate of savings in retirement funds. There might be other reasons.

      Another way to slice things is to look at people as they age. As people get older, they naturally have more savings. But are these savings increasing with the compounding rate 401K salesmen keep suggesting? They like to remind us that if you start saving at 25, and save for forty years, compound interest will turn things into a $1MM. The peak amount I see up above were people aged 55-64 in 2007 having $104,800. That doesn’t appear close to $1MM.

      I don’t know where Kiplinger gets their stats from, but the source I am citing goes back at least ten years if you take the time to read it (which I provide a link to in lieu of my blog site).

      Shifting to anecdotal evidence, I look at my own situation. I make more now that I did in the past 17 years of my career. But I now have a family and actually have to spend more. When I was single, I saved like crazy, hitting 18% 401K savings rate. There is no way I can do that today. That doesn’t apply to everyone, but I’m sure many people have experienced that. My own brother told to save as much as possible because I would reach this state of not being to save as much.

      The only people I can see, on average, within “shouting distance” are the top 10% of income earners, that have, according to Table 4, accumulated a median net worth of $2.944MM, while the next percentile down, have a median net worth of $286,200.

      It’s from this that I have figured out that trying to do what everyone else is doing will probably make me get the same performance as everyone else. Instead, I should be doing what the top 10% are doing, which according to this survey, is collecting real estate, cash value life insurance, and developing business equity (see Table 9.B. for that).

  31. Greg,
    Thank you for your thoughtful response. I can appreciate your answer becasue your overall message is one I fully support…diversification! We can argue studies, between mean and median, loss of pensions vs 401k contributions, but we get into the weeds. My issue is with the overall tone of this article. “Forget your 401k, buy real estate!”. I have 3 investment properties in FL, so I understand the value of real estate, but this article is extremely destructive for those that are looking to start a retirement plan. A 401k, with employer match, provides a 50% rate of return on the amount matched (in almost all scenarios, I get 100% on my first 10%). What is the best rate of return? Guaranteed rate of return, and 50% at that.
    Google how to retire with a million, tons of articles show up. “The easiest way to save $1 million is to begin saving at your first job. If you start saving at age 25, you could save just $4,682 per year and reach $1 million by age 65, assuming 7 percent annual returns, according to calculations by David Fernandez, a certified financial planner for Wealth Engineering in Scottsdale, Ariz. “You could do that by maxing out a Roth IRA or saving in a 401(k),” Fernandez says. “If you wait until 35, the amount you need to save more than doubles.” Beginning at age 35, you will need to save $9,894 each year to accumulate $1 million at age 65. If you further delay saving, you’ll need to tuck away $22,798 annually beginning at 45 or $67,643 at 55 if you hope to be a millionaire upon retirement at 65″.
    The historical rate of return on the S&P500 is 7-8%. Thats historical fact.

    American Association of Individual Investors: “It should come as no surprise that behavioral finance research makes a strong case for buying and holding low-cost, broadly diversified index funds.”

    Mark Balasa, CPA, CFP: “That three-pronged approach is going to beat the vast majority of the individual stock and bond portfolio that most people have at brokerage firms. There is a certain elegance in the simplicity of it.”

    Christine Benz, Morningstar Director of Personal Finance: “A single, broadly based index fund can give you exposure to the whole stock or bond market, enabling you to build an entire portfolio with just one or two funds.”

    Bill Bernstein, author of The Four Pillars of Investing: “Does this (three fund) portfolio seem overly simplistic, even amateurish? Get over it. Over the next few decades, the overwhelming majority of all professional investors will not be able to beat it.”

    Jack Bogle, Vanguard founder: “The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk. — There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite.”

    Warren Buffett, famed investor: “I’d rather be certain of a good return than hopeful of a great one. — Most investors are better off putting their money in low-cost index funds.”

    Scott Burns, financial columnist: “The odd are really, really poor than any of us will do better than a low-cost broad index fund.”

    Jonathan Burton, MarketWatch: “There are plenty of ways to complicate investing, and plenty of people who stand to make money from you as a result. So just think of a three-fund strategy as something you won’t have to think about too much.”

    Andrew Clarke, co-author of Wealth of Experience: “If your stock portfolio looks very different from the broad stock market, you’re assuming additional risk that may, or may not, pay off.”

    Jonathan Clements, author and Wall Street Journal columnist: “You could build a fine portfolio with just these three funds. The two stock funds will give you a shot at getting richer, while the bond fund will help ensure you don’t end up poor.”

    John Cochrane, President American Finance Association: “The market in aggregate always gets the allocation of capital right.”

    Consumer Reports Money Book: “Simply buy the market as a whole.”

    Charles Ellis, author of Winning the Loser’s Game: “The stock market is clearly too efficient for most of us to do better.”

    Nobel Laureate, Eugene Fama: “Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk…The market portfolio is always efficient…For most people, the market portfolio is the most sensible decision.”

    Paul Farrell, author of The Lazy Person’s Guide to Investing: “Where does Fama invest his retirement money? ‘In index funds. Mostly the Wilshire 5000.’ ”

    Rick Ferri, Forbes columnist and author of six investment books: “The older I get, the more I believe the 3-fund portfolio is an excellent choice for most people. It’s simple, cheap, easy to maintain, and has no tracking error that would cause emotional abandonment to the strategy.”

    Graham/Zweig, authors of The Intelligent Investor: “The single best choice for a lifelong holding is a total stock-market index fund.”

    Alan Greenspan, former Chairman of the Federal Reserve: “Prices in the marketplace are by definition the right price.”

    Mark Hebner, author of Index Funds: “A diversified portfolio which captures the right blend of market indexes reaps the benefit of carrying the systematic risk of the entire market while minimizing exposure to the unsystematic and concentrated risk associated with individual stocks and bonds, countries, industries, or sectors.”

    Hulbert Financial Digest: “Buying and holding a broad-market index fund remains the best course of action for most investors.”

    Sheldon Jacobs, author of No-Load Fund Investing: “The best index fund for almost everyone is the Total Stock Market Index Fund.–The fund can only go wrong if the market goes down and never comes back again, which is not going to happen.”

    Kiplinger’s Retirement Report: “You’ll beat most investors with just three funds that cover the vast majority of global stock and bond markets: Vanguard Total Stock Market; Vanguard Total International Stock Index and Vanguard Total Bond Market Index.”

    Lawrence Kudlow, CNBC: “I like the concept of the Wilshire 5000, which essentially gives you a piece of the rock of all actively traded companies.”

    Prof. Burton Malkiel, author of Random Walk Down Wall Street: “I recommend a total-maket index fund–one that follows the entire U.S. stock market. And I recommend the same approach for the U.S. bond market and international stocks.”

    Bill Miller, famed fund manager: “With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me.”

    E.F.Moody, author of No Nonsense Finance: “I am increasingly convinced that the best investment advice for both individual and institutional equity investors is to buy a low-cost broad-based index fund that holds all the stocks comprising the market portfolio.”

    Motley Fools: “Invest your long-term moolah in index mutual funds that are designed to track the performance of a broad market index.”

    John Norstad, academic: “For total-market investors, the three disciplines of history, arithmetic, and reason all say that they will succeed in the end.”

    Suzy Orman: “One of my favorite index funds, Vanguard Total Stock Market (VTSAX), has a total expense ratio of 0.06%”

    Anna Pryor Wall Street Journal writer: “A simple portfolio of 3 funds. It may sound counter-intuitive, but for the average individual investor, less is actually more.”

    Jane Bryant Quinn, syndicated columnist and author of Making the Most of Your Money: “The dependable great investment returns come from index funds which invest in the stock market as a whole.”

    Pat Regnier, former Morningstar analyst: “We should just forget about choosing fund managers and settle for index funds to mimic the market.”

    Ron Ross, author of The Unbeatable Market: “Giving up the futile pursuit of beating the market is the surest way to increase your investment efficiency and enhance your financial peace of mind.”

    Paul Samuelson, Nobel Laureate: “The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios.”

    Gus Sauter, former Vanguard chief investment officer: “I think a very good way to gain exposure to the stock market is through the Total Stock Market Portfolio on the domestic side.”

    Bill Schultheis, author of The Coffee House Investor: The simplest approach to diversifying your stock market investments is to invest in one index fund that represents the entire stock market.”

    Charles Schwab: “Only about one out of every four equity funds outperforms the stock market. That’s why I’m a firm believer in the power of indexing.”

    Chandan Sengupta, author of The Only Proven Road to Investment Success: “Use a low-cost, broad-based index fund to passively invest in a little bit of a large number of stocks.”

    Prof. Jeremy Siegel, author of Stocks For The Long Run: “For most of us, trying to beat the market leads to disastrous results.”

    Dan Solin, author of The Smartest Portfolio You’ll Ever Own: “You can get as simple or as complicated as you’d like. You can keep it very simple by owning just three mutual funds that invests in domestic stocks, foreign stocks, and bonds. That’s precisely what I recommend in my model portfolios.”

    William Spitz, author of Get Rich Slowly: “Few are able to beat a simple strategy of buying and holding the securities that comprise the market.”

    Prof. Meir Statman, author of What Investors Really Want: “It makes sense to have those three funds. What makes it hard is that it seems too simple to actually be a winner.”

    Stein & DeMuth, authors of The Affluent Investor: “Buying and holding a few broad market index funds is perhaps the most important move ordinary investors can make to supercharge their portfolios.”

    “Robert Stovall, investment manager: It’s just not true that you can’t beat the market. Every year about one-third do it. Of course, each year it is a different group.”

    Larry Swedroe, author of 17 financial books: “Over the last 75-years, investors who simply invested passively in the total U.S. stock Market would have doubled their investment approximately every seven years.”

    Peter D. Teresa, Morningstar Sr. Analyst: My recommendation: a fund that indexes the entire market, such as Vanguard Total Stock Market Index.”

    Wilshire Research: “The market portfolio offers the best ratio of return to risk.”

    John Woerth, Vanguard director of public relations: “We would agree that this three-fund approach offers most investors a prudent, well-balanced, diversified portfolio at a low cost.”

    Jason Zweig, Wall Street Journal columnist and author of Your Money and Your Brain: “I think a total stock market index fund is not only the simplest, but the very best core investment for most people.”

    Warren Buffett, famed investor: “There seems to be some perverse human characteristic that likes to make easy things difficult.”

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