August 2022 AMA
User Request for a public spot for Q&A
Welcome back Anon -
We received more than one request from paid subscribers looking to an area for Q&A.
We don’t know if this will be a monthly, quarterly, or random occurrence, but if you have questions you want answered about anything personal finance related, drop them below:
What is one thing we can do/modify to improve financial education in the United States?
Thank you for setting this up, ser. Deeply appreciate it and I hope to see this be a monthly occurrence if it makes sense for you.
Question: Do 401Ks make sense if you're a smart young person and high income? Details below:
I was hoping to have a sanity check by you on this. I estimate that if I maxed out my Employer's 401K with the match, I would contribute $19.5K and save about $6000 a year in taxes. The match is OK at 50% but it only gives about an extra $600 in total. Almost everyone says "401Ks are great and you need to have one otherwise NGMI in retirement". But what is the opportunity cost of contributing to a 401K?
I am not sure if that is really worth the opportunity cost of having less dollars today, especially when we may get the opportunity to buy cheap assets in RE/ Crypto for the next 6-18 months. If Bitcoin goes to 100K / coin in 5 years, it is obvious that the 19.5K/year would have been much better served simply DCA into Bitcoin. Even just DCA into stable dividend stocks seems to be better. So, I am skeptical that 401Ks are really worth it for a smart and ambitious young person for these reasons, but also because:
1) I don't want to wait 40 years to withdraw the contributions penalty free when It is likely I will be financially independent in just 6 years, and I should be "rich" in 16 years. therefore I will not "need" my 401K fund.
2) I don't know how 401Ks will change in the future, and what the tax rates will be (likely higher it seems)
3) I don't trust other people to manage my money, especially when there's a stunning lack of transparency with how your 401K money is used. Combined with a tremendous incentive for companies to essentially gamble with their customer's 401K money, it seems like a large risk
4) I don't want to introduce an extra administrative burden. Even just spending 5 minutes a month on your 401K costs you an hour in lost productivity in a year.
5) Lack of control over your own funds.
6) There seems to be almost unanimous agreement from "normal people" that a 401K is "great". That makes me suspicious that it's not as great as it seems.
However, I do have a ROTH IRA, but that's different. Maybe I could rollover my 401K into some of my ROTH after paying a conversion fee.
I can certainly see how having a 401K is better than nothing if you're the typical American. Because they're not investing in anything regardless. If they didn't have a 401K, that money would be spent on BS like new TV, Xbox, unnecessary cars, etc. But we're not normal. We're financially responsible. And unless I am missing something, that contribution money could be used for much better opportunities.
Please let me know what you think and if i'm missing something. Thanks again