401k vs stocks

“The tragedy of life is not found in failure but complacency. Not in you doing too much, but doing too little. Not in you living above your means, but below your capacity…” 

~ Benjamin E. Mays

If you’d rather listen, have a go at The Toasty Podcast. Available on iTunes, Spotify, and Google Play.

Look, brosky, I get it. It’s easy to set it and forget it. The society in America has been bred with convenience in mind. But what if I told you, when it comes to your retirement, convenience may not be that convenient after all? Today I want to tell you if you should invest in stocks or the 401k. #letsgettoasty

The Toasty Post

• What is a 401K and what’s in it for you, you stranger.
• Why isn’t this good enough for you. All I want is for you to be happy.
• You can have it all (or just both of these investment accounts). Everything the light touches, is yours, Simba.

Let’s gooooooo

Before we get toasty, please subscribe to the Toasty Post so you can get my post each week on a different investing topic to help the average joe like me!

Bored already? Well you’re in luck! I don’t think it will get any better for you. A 401(k) is a specialized investment account that you can contribute to specifically for retirement. It’s a tax “preferred” retirement account meaning the money you put into it (directly from your paycheck) is not taxed. This reduces your taxable income so your income tax will be lower for the year. Sounds dope af right? Wrong-o my newly acquired stranger. 

This means you get to take the earnings, but you better hope Liberty herself is still feelin sturdy because you’re counting on the Federal Reserve of the USA.

Still into it huh?

Let me get one thing straight, I have a bias against these 401(k) plans because I’m convinced we can do better in our own portfolios. But just like a fine wine, there’s a time and a place for everything.  

I would recommend a decent investment account based on index funds or low cost mutual funds to anyone just starting out in their investments with at least 10 thousand already contributed to it. What I talk about in other articles, like my five steps to enter the stock market, are mainly for the individual that has money in this type of account already and they want to do something on their own. Starting out blindly trading in the stock market will get you nowhere, so it’s always good to have a “safe” account along with your “trading” account. This is how I do it, and I’m ok with it. Just know that whatever managed funds are available in your “safe” account might also be available outside of that account. These managed portfolios and index funds trade like a common stock with a ticker symbol.

You’ve already started in your company’s 401(k) plan? Well don’t stop now! But you need to find out where your money is going if you haven’t already. Who knows what the “default” mutual funds or Target-Date funds are. You could be set up to start your retirement at 75…ew. While you’re at it, see if you can spot your account fees and trading fees on your retirement account.

Where oh where…

Couldn’t find it? I thought so. Retirement accounts set up by employers aren’t always as transparent as Robinhood or Fidelity individual investment accounts. So call them. Or don’t. Not really up to me. Figure it out.

Now, if you took the time to set your contributions correctly for your age and risk tolerance, you can continue to throw some money into the 401(k). I’d at least put in whatever your company matches. …oh, your company doesn’t match anything? Where’s that fine wine I was talking about…you look like you need it.

Just keep swimming

It isn’t all bad. You’re still investing and your money is still making money like a good lil’ dollar is supposed to. But the truth is there is something better out there for you if your company has decided to be a pill and offer zero incentives on your 401(k). Go check out an IRA (Individual Retirement Account) or Roth IRA. These are basically the same as a 401(k) or Roth 401(k), but not supplied by your employer and they most likely have a lot more options in the mutual fund/target date-fund department. You can rollover whatever you have for a small fee without the money being taxed usually. You’re welcome.

Ok. Why am I here again?

Technically your money still ends up in the stock market even when you put money into a 401(k), especially when you’re young. Just go have a look at your asset allocation in your 401(k) portfolio. You’ll most likely see a pie chart made up of different assets. This will include stocks to some degree or percentage. I can be a bit of a risky Rodger so my assets include around 90% stocks. This isn’t that bad at our age though tbh (millennial status).

If you’re wondering why everyone describes a 401(k) as one of the safest places for your retirement money, it’s because of the type of return you can expect along with the idea investors like to call diversification. Since I’m not feeling the explanation atm, take a quick look at the definition ^link^. I’ll most likely cover this in an upcoming article, but cut ya boi some slack. If I could fit every topic of the stock market and investing into one…then there would be no need for a blog about it. So stocks carry inherently more risk simply because it’s only one company you’re investing into–we’ll get diversified soon. If you want an easy way into diversification without the headache of picking your home team though, check out the ETF.

Stocks and a 401k

Here’s the dill pickle, you can have both of these accounts. My advice is that you supply your 401(k) or IRA with your retirement money, or enough to get the full employer match. Additionally,  your side gig will be the individual investment account so you can expose yourself to the stock market ticker by ticker. Yeah…I use Investopedia a lot. No, I don’t get paid for that. Sure would be dope though! (wink, wink)

This way you will sleep well knowing you aren’t ruining little Timmy’s future. Besides, it will give you a solid comparison of how well you’re doing year-over-year. You’ll get to see how well…or not…you’re beating your own retirement account. You’ll be surprised at what you can accomplish on your own though. See my five step plan to begin trading if you believe in yourself. Moreover, you’ll wonder how the financial managers over these funds get paid so much money, but that’s for another Toasty Post.

.readme

It’s been fun toasters, but let’s get real. I give out advice, and that’s all it is. Ya boi might be invested in stocks I mention, but it’s not a recommendation. I am not here to make you rich. I’m showing the next generation of investors that it’s possible to beat the S&P with no degree and some research. You do you boo, but no matter what that means, please subscribe.

If you hated reading this, have I got the solution for yyyoouuuuuuuuu. Check out the Toasty Podcast. You’ll hear the sweet serenade of my voice and maybe learn something without wasting precious time. But mostly the voice thing… (on iTunes, Spotify and Google Play)