This article looks at the disadvantages of 401k plans that are not fully diversified. There are dozens of comparisons on the internet that allow you to compare traditional, Roth, 401ks and other retirement plans.
But, no matter which plan you choose, failing to diversify could make you lose.
Investment advisors see a danger inherent in 401ks. Employers are allowed to offer their employees company stock options, instead of matching contributions. It makes sense for the company, but not always for the employee.
When Enron went bankrupt, many of their employees lost their entire retirement packages, because their funds were invested solely in company stock. Not only were Enron’s matching contributions made using stock options, the employees were encouraged to invest their contributions in the company, as well.
In other words, there was no diversification.
In 2008, the severe stock market fluctuations (which some experts refer to as a “crash” and others call a financial “crisis”) caused millions of people to lose a great deal of money. Not all of the companies that were hit went out of business.
So, some investors have started recouping their losses. But, the crash or whatever you want to call it, is a real-life example of one of the biggest disadvantages of 401k plans. Most providers offer only stock options.
Most plan providers are simply stock brokers. They are referred to as financial institutions, but they aren’t like regular banks. The trustees or account custodians are mostly unfamiliar with investments outside of the stock market.
If you called up your trustee and said that you were interested in using your holdings to invest in a shopping center development, the trustee might say that investment type is not allowed. While it might not be allowed by the custodial company, it is allowed under the applicable IRS laws.
Another of the disadvantages of 401k plans that are not diversified is reduced earnings. You might not lose money, but you might not reach your earning potential, either.
Historically, the average stock market investment has returned 6-8% per year. Those figures are going to drop dramatically, once the 2008 figures are averaged in.
Bonds and treasury notes have long been considered the safest investments, because you are investing in the federal government. But, the annual returns are less than 2%. You can’t get wealthy on that, unless you already have a bundle.
You can avoid these disadvantages of 401k plans by choosing the self-directed approach. It is a simple matter of finding a financial institution that allows self-directed investing.
With that kind of account, you can be fully diversified. You can still choose stocks, but you should choose different ones, from different industries.
You can also invest in shopping center developments, residential real estate and many other options.
If you are unfamiliar with investing, you can always learn from others. There’s lots of free advice on the internet. Some of it is worth taking and could make you wealthy.
There aren’t any disadvantages of 401k plans that are self-directed. They just keep growing and growing.
To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.
This is the best investment strategy considering today’s economic environment for building a secure financial future.
Isn’t your financial future worth it?
Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.
Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com.
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