5 Surprising Reasons Why A Retirement Plan May Be Your Riskiest Investment

Banking institutions have a distinct genius for marketing and advertising. They're able to get millions of Americans to give their money with extremely little thought taken, very little knowledge of the so-called investments offered, as well as less control of their investments.

It really is one of the riskiest gambles for many people. Read the following reasons why I say this, and then ask yourself if it is time to reevaluate your 401k.

1. Minimal Opportunity For Cash Flow

Qualified retirement plans, which include 401k's and IRAs, do not deliver immediate cash flow, which would mean that you can't benefit from them through velocity and utilization. The idea is that letting the funds sit allows it to compound, but for many folks this actually means that it stagnates.

Many people will not choose to utilize these funds even if a particularly compelling opportunity arises that may make them a lot more than the 401k would, even with the penalties. This means that many legitimate opportunities are passed by as folks stay "in it for the long haul."

As an alternative, use your 401k to invest in equity capital markets. Just be sure that you steer clear of investing in shell companies. A shell company can come with a very long list of "clean up" problems.

2. Lack of Liquidity

The funds are tied up with penalties attached for early withdrawal. Even though you will find a couple of technicalities that permit penalty-free withdrawals, the constraints are so numerous that very few know ways to get around them.

3. Market Dependency

The actual performance of the funds depends on market factors that most people don't have the knowledge or the capacity to understand or mitigate. This indicates that your retirement plans are determined by unknowable projections, making for a risky and unstable planning environment.

4. The Match Myth

"Take the match. It is a guaranteed 100 a year, based on an average return of 8% annually, but that indicates that some years will probably be lower, some might be greater. If in one year your funds are down 10%, you are tapping into your principal to take your interest withdrawal.

At that point, you have got only two choices: 1) begin withdrawing principal, or 2) leave the money alone until your funds are up once again.

5. No Holistic Strategy

I've witnessed on several occasions, men and women whose finances are in shambles and even though they have much more pressing needs, they carefully contribute to their 401k. They have been convinced to do so, obviously, simply because of the match, tax deferral, etc. It is like a person attempting to take care of a sprained knee when their wrist is slit.

What they actually need is a macroeconomic approach to their finances that can help them identify, prioritize, as well as manage all pieces of their financial puzzle, with all the pieces coordinated and then working together.

Conclusion

Qualified plans are marketed on such a wide scale because people promoting it have vested interests and their interests do not necessarily coincide with yours.

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