"Put your saved money into secured, sacred (untouchable) accounts," he writes on Entrepreneur. "Never use these accounts for anything, not even an emergency."
A secured, sacred, untouchable account... like a 401k?
Well, you shouldn't. The whole idea with retirement accounts is that they aren't fun money for investing whims or when you get jealous your neighbor has a new mercedes and you don't.
The only time money should be pulled out would be for a serious emergency and even then as a last resort its pretty stupid as bankrupcy would make more sense as bankrupcy courts can't go after your 401k.
If you're regularly pulling money out of your 401k then you're doing retirement planning wrong.
If you contribute to a Roth IRA (after tax money, ideal for those under the 25% marginal rate), the contributions can be removed at any time penalty free. It quite literally can be treated as an emergency savings account if you have no other liquid savings available, and insist on investing every available dollar (and is also protected from creditors in almost every state, something a savings accounts is not).
If you're at a company that matches your 401k contribution, you're literally leaving free money on the table if you don't contribute to a 401k.
I think the most sensible approach is to contribute enough to your 401k that you max out an employer match (hopefully you have one of those), and then invest the remainder of your savings in the market.
But waiting until you have 100k in cash before you do something with it seems crazy to me.
But waiting until you have 100k in cash before you do something with it seems crazy to me.
The theory is that without a healthy emergency fund, you won't take risks on better investments later on.
I buy into this as I played it pretty safe until I had a year or two's income saved. I then decided to do my own thing for a bit, and now I'm running a healthy business that I wouldn't have been otherwise (basically a freelancer to business owner transition).
But let's say you have a 50k 401k that you can borrow against in an emergency, and a 50k index fund - that's 75k in liquidity that you have available to you with a few days notice. 100k in the bank sitting there is getting you maybe 1% and the need for that money on an instant's notice seems...low.
(I am a huge Cardone fan and buy into most of his shtick.)
This Yahoo writeup is poor compared to the original, but what he means is that once you have your emergency fund ($100K in this case), put the rest of your money into "untouchable" (not literally, but that's how you treat it) places so that you can make investments with it later (in Cardone's case, nearly always property purchases).
You missed the even more the important/hypocritical part of the quote:
"... To this day, at least twice a year, I am broke because I always invest my surpluses into ventures I cannot access."
I assume this is just poor reporting.
He misses a massive thing about the 401K.. companies may match and It can lower your taxable income. If you are really wealthy this matters little but if you are that magical $250K putting money into a 401K is probably worthwhile.
But in general I sort of agree that the 401K is massively overrated. It is just a reminder of how messed up the tax codes are. IMO just make zero loophole flat tax percentage on income. No capital gains tax. Just a percentage tax on income. If someone tries hide income go after them hardcore.
Owning rental property IMO (ie depreciable asset) in the right locations I found more effective than a 401K and many retirement accounts but I still have old 401Ks and even a Roth IRA on autopilot. The US embraces property ownership too much (tax deductions) which makes investing in other ventures less desirable (which probably hurts the country overall).
> He misses a massive thing about the 401K.. companies may match and It can lower you into another tax bracket
Exactly. Most match up to 3.5%-5% - which is a lot of free money (and this doesn't even take into account if you invest your 401k/IRA)!
Since the author advocates putting your money into a savings account instead, author is forgoing a lot of free growth, while gaining virtually no security.
> Grant is promoting saving the money you earn, but counter to most advice, he says to put the money in a good old-fashioned savings account — where your money is accessible at a moment's notice — until you have at least $100,000. Then, you can start investing.
I get what the guy is saying, sort of, but it's also the stupidest advice ever for most people. Saving $100,000 in a savings account is a whole lifetime of savings for many people. Meanwhile you're earning nothing on it, and it's not tax advantaged.
> I'd far rather hear about where to put that $100k than where to build it.
Typically, you'd put the money someplace where it does work for you (ie. earns more money).
Parking it somewhere where it does nothing can actually harm you since inflation will eventually diminish the value of your parked money, even if it's the same number of dollars. This is even true in most savings accounts since they pay so little interest.
Essentially, the author's advice is generally the opposite of what you'd normally want to do.
so, a cd. You can't buy an index fund, because for the timeframe we're talking there's a high risk the market will be down when a big opportunity presents itself.
My problem with the article is that it's missing the important piece, which is the types of opportunities this guy is talking about. My personal experience, is about once or twice a decade a good investment (10% APR or better with low risk) comes my way. Housing is an obvious one in a several areas, but I've also seen business opportunities as well.
I'd say it's not great advice in general for most people though. You have to be vigilant for opportunities, and for most people, if you already have a mortgage, 401k is often better than IRA since it's matched (be careful of 401k with >1% annual fees, there's an inflection point where lifetime fees costs more than the matching).
> 401k is often better than IRA since it's matched
Some IRA's are matched as well. SIMPLE IRA's for example, are effectively like a 401k for the user; your company still matches up to some percentage, although you gain some freedoms in being able to take your IRA account to any investment company, not just the one your company chose. SIMPLE IRA's are cheaper and easier for a small business to run for their employees.
You don't seem to get the other half of the advice - earn more money. Get better at making money. If you spend a lifetime to save $100,000, you won't be a millionaire.
The advice in earning money is good. The advice on where to park it is absolutely awful. Learn from Trump and Romney here: you must get the taxes under control. If you put 100k into a bank account, it will earn nothing and taxes will eat you alive.
The point of a 401k is that it is tax advantaged and the money is there when you get old, when you need it.
I can understand piling money in a bank if there is something you plan to do with it. But piling 100k in a bank when your only plan is "so NOW I am ready to do something with it" is some of the dumbest financial advice I have ever seen. Even if this guy is good at making money, he must be even better at spending it, and the tax man is going to be his biggest payee.
You pay taxes when you earn the money as salary, pay taxes on the interest. With a 401k, you pay no taxes when you earn the money as salary, and the earnings compound tax-free.
A bank account is the absolute worst place to park any significant amount of money. The only reason it's better than a mattress is you don't have to worry about the bank catching on fire.
You pay taxes when you withdraw from a 401k, and the IRS has minimum distribution requirements that ensure you will pay taxes on all that money at some point.
Personally I think a Roth IRA is the better deal from a tax standpoint -- pay taxes on contributions and then you're done. With a long enough time horizon and a little luck those contributions will be dwarfed by earnings, and I would rather pay taxes on the lesser amount.
A savings account earning >=1% interest is a negligible tax burden. What you lose from inflation is far greater than what you pay in taxes. Even so, saying it's "the absolute worst place" to put money is beyond hyperbolic.
> Meanwhile you're earning nothing on it, and it's not tax advantaged
In some situations, you may be earning negative money! Inflation may beat whatever measly fraction of a percent your savings account earns in interest.
If you're content to leave a pile of money in an account you can spend from whenever necessary, why not at least use a Money Market? It's slightly better than a plain old savings account, but not as risky as other investments. Or, setup revolving CD's, so your money is at worst 30 days away.
A regular savings account is simply not a good place to park that much money. It's the safest, but that safety comes at a cost.
One issue is Cardone's advice is often spot on for people already starting to buy into his mindset, but bombastic and unrealistic to everyone else.
His core message is about increasing income through huge effort above anything else. So if you're making $50K, it's all about doubling down and hammering your way to $100K, saving the difference in the bank, and then once you have that emergency fund, save to invest.
As you suggest, the majority of people can't or won't do this so the advice isn't really viable for the majority either.
He started a 50k early and has no college debt, which is a wonderful starting salary and situation that the vast majority of Americans don't see/have.
Not even many college educated Americans. His accumulation to 100k was a few years, saving 40% of his after tax income since he wasn't paying down debt.
That's wonderful for him, but I don't think it's mass advice to give back to the world. It's just sort of a 'glad that works for him'.
No .. there is something to it. I socked away cash in my 401K and then found myself with a big fat 401K and not being able to afford the insane downpayment required to buy a million dollar home. Home prices in a few places increased by quite a bit over the last few years. So by not having cash accessible, I had a big setback. Since then, I lowered my 401K contribution to just be what the company matches. I expect I'll be able to increase it after I put in that 20% down payment. Btw .. I did look into getting a loan against my 401K for purpose of buying a house but I think there is a limit that doesn't reflect the current market in the Bay area (don't remember but something like 20-50K; too early to remember the details).
This is not what he's saying. The premise of the argument is that with $100,000 (or, if that's a lifetime of savings, $20,000) you can earn more by investing this in yourself than your 401k would.
He asserts that this is true because that's what he did, and it worked for him.
I would counter that this sort of good result does not work for everyone. If there was such a foolproof investment technique (Flipping houses? Picking stocks? Some secret in the "How to get rich quick" book he's selling?) then your 401k managers would do it.
Many entrepreneurs and small business lose money, and you can't extrapolate the results of a few successes over all potential entrants, except as a distribution. A few angel investors have made this work, but that doesn't mean everyone can do it.
"to Grant's point, they won't help you get rich quickly or invest in opportunities today."
It all comes down to [being able to] taking risks and having the funds available when opportunities arise to be able to. Without a "risky opportunity" fund then one can't participate in high risk high reward opportunities.
However, if one has a company match to their 401(k), why couldn't someone contribute to their 401(k) to get the max "free" match and then if an opportunity arises one could do an early withdrawal of some funds to pay for it? Yes, you'll pay taxes and penalties but if you view the companies match as free money and it covers those taxes and fees, then are you really any worse off then never having contributed? Until an opportunity presents its self you're also getting returns on the free company match money.
I think it's a really bad idea. High risk high reward opportunities are essentially gambling. Whereas a 401k is a back-up plan and a safety net. Don't take money out of your safety net and gamble it away (which is a very likely outcome on a high risk opportunity).
If you want to participate in high risk high reward opportunities, create a separate account for it and consider it "throw away" money from the beginning. (Your high risk opportunity might pay off, but don't count on it.)
Not true. I have a friend who has 1.4mil in his investment accounts(mostly Roth IRA and 401k) by age 35. He started around 25. He does mostly low cost index funds from Fidelity and Vanguard.
Assuming his investments gained by 10% a year (which is extremely optimistic), he would have had to save $80k per year. Only a small minority of people have the required income to do that; especially at 25.
all I know is he started from scratch(no money passed from family). He started investing after college, after losing money to stocks for 1 or 2 years, he got into low cost index funds. Right now he is 37 and got about 1.5 mil in his account (mostly 401k and individual after tax). He started entry level position in a fortune 500 company (chemical) after college and have not changed job.
This seems like the type of advice that comes from observing that a lot of rich people have done this. However it fails to account for the fact that the majority of people who do this don't go on to become rich.
In my opinion, the sad truth is that not everyone can be rich. As if everyone was able too be rich, it would be easy, and if it was easy, it wouldn't be valuable, hence you aren't going to be making lots of money and become rich!.
As an aside, take a guess what savings plan will leave you with the most in the end: At 7% interest, with an annual addition of $20,000 a year for 40 years. Or 7% with an annual addition of $40,000 a year for 30 years?
Indeed, this is rich people advice. You only have to get rich once, and then you can do things such as ignore your 401k, which unlike savings has tax advantantages.
My biggest concern with all government investment/savings schemes is that the rules and future tax rates when I'm ready to withdraw are a politician's whim away from scuttling any plans I've made based on the original assumptions.
It's certainly a risk. If you were exploiting some unpopular loophole then there's an excellent chance that the regulations will change in the future. But the 401k is so widely used and promoted that any major change would be highly scrutinized and incredibly controversial. I think the US defaulting on its debt is more likely than a change to 401k rules that would screw over savers.
Ultimately, if you don't want the government to have any ability to affect the value of your investment then canned food and ammo are the only asset classes you're left with.
Rate of return goes hand in hand with risk. The man in the article took greater risk and, because successful, became a multi-millionaire. There is success bias built into this because while a large percentage of millionaires are entrepreneurs, a large percentage of entrepreneurs are not millionaires. Also, the idea that you cannot become a multi-millionaire through saving (and inside a 401k) is coming from a guy who never tried it. From those who have tried it, it is indeed possible. :-)
Best retirement advice ever: Save money automatically without even knowing it because you'll adjust to just spending less. Doesn't matter if it's money going into your mortgage, money into your 401k, or money into a separate savings account that you don't touch. Just sock it away, live like you don't have that money and you'll thank yourself years later.
The only real difference between that and Cardone's approach is sock it away into a savings account you can access at some point, then invest in real estate (or whatever) with it to make the real money.
> The only real difference between that and Cardone's approach is sock it away into a savings account you can access at some point, then invest in real estate (or whatever) with it to make the real money.
I'm saying do all of them. Tax advantaged, non-tax advantaged, mortgage, you name it. There's really no wrong answer. The bigger item is saving in general.
Regarding 401k, Roth IRAs, and other tax exempt/deferred account with withdrawal penalties, I'm all for them. If nothing else it makes you lock away the money where you can't get it because otherwise, shocker!, you will. Those account types make it easier to pretend you don't really have that money as the fear of paying the 10% early withdrawal penalty is enough to knock sense into people.
I'm a big fan of Mr. Money Mustache's advice: If you have a large chunk of money in savings, don't leave it in a savings account because the interest is so low. There's a Vanguard index fund (I'd have to look up the name) that's designed to represent the entire US economy. Use your savings to buy that fund, and you'll at least be able to get a better return than a savings account and still keep your money accessible.
Is this risky? Not at all. Will it give you a huge return? Maybe over 50 years, but not in the short term.
But it's better than leaving it in a savings account.
The one time that I decided not to contribute to my 401(k) was when I had just graduated and still had some credit card debt and my salary was low(so the value of the company match was minimal). Getting rid of the debt was more important to me than saving a little for 40 years in the future. Arguably, this was still a bad idea, but mentally, not being in debt was important to me at the time.
I'm not aware of one that covers the entire economy. Do you mean the Total Stock Market Index [0]? There is also a corresponding Total Bond Market Index [1], so that you can balance between the two. (Also, international versions.)
My employer matches my 401k contribution, so I'm not going to turn down free money. That being said, I will take it all out when I can avoid the penalty. The 401k is simply tax deferred, so if I have the income I plan to have when I retire, I will still be in the top bracket. For that reason the 401k is useless to me.
What's wrong with a Roth IRA? You withdraw the principal penalty-free at any time, and you don't pay taxes on the growth in retirement. You don't even have to invest it in stocks if you're risk-averse.
>What's wrong with a Roth IRA? You withdraw the principal penalty-free at any time
Yes, but you don't get to put it back in. If you take out, say, 20k, thats 20k of tax advantaged space you never get back. That being said, I max out my Roth IRA every year and consider the ability to withdrawl penalty free a last line emergency source of funds.
A lot of people in America going to work until they die, because they can't afford to retire.
I've always had a problem with saving for retirement. I'd rather spend money when I'm younger and can enjoy it, than when I'm old and can't enjoy a lot of the things that I could when I was younger.
I've also never been big on chasing money, either through climbing the corporate ladder or entrepreneurship. I'm just not interested in that stuff, and get burnt out before long working in a career I don't enjoy, so I wind up taking years off when I can afford it, and that eats in to my savings. My investments have never worked out either. I'm just not good with money.
Yes, I know a lot of people are going to suggest that I should put my money in to an index fund and forget it. But I've never been able to trust that the market will keep going up. Of course, I've been proven wrong so far. But how much longer will it keep going up? No one knows, and I really don't know why some people pretend they do. No amount of statistics are going to guarantee that you'll have more money when you take it out of your index fund than when you put it in. And plenty of people have been burnt by the market and watched their savings burn up.
A lot of people talk about investing as if it's guaranteed to make money for them. But it's not. You could lose every penny you invest, and wind up being worse off than if you didn't. It's happened to me before, so I'm really wary of "investing" (ie. risking) my money.
So I'm kind of resigned to not having all that much money left when I'm too old or sick to work. And then I'll probably die. But at least I'll have lived somewhat by then.
> So I'm kind of resigned to not having all that much money left when I'm too old or sick to work. And then I'll probably die. But at least I'll have lived somewhat by then.
That is fine and all if you don't have family (ie kids) but if you do you really should put money away so that you don't become a burden later. Right now my generation and a little older (Gen X-ers) have parents that were slightly irresponsible with money (buying ridiculous houses and double mortgaging etc).... and now when they get sick and old guess who has to pay. One might argue you that is fair but it certainly wasn't the case for the previous generation.
The grandparents (ie greatest generation or whatever they call the war/depression generation) typically saved up.
This is a good thing because wealth takes time to build up. Our country did not become wealthy overnight.
This is moronic click-bait. If you're a wage slave, take the extra 5% from your employer, it's literally free money even if you can't use it. If you have the sums the author is talking about, keep it liquid to play with or whatever he's advising.
His advice is damn close to saying that you should invest all your money into lottery tickets because, hey, it worked for him. Sample of one. It's great that he has been able to prosper that way, though I do wonder how he got by during those times he was broke and whether that same support is available to others. Statistically, his approach would be a disaster for most people. The only point worth remembering is that some people really are blind to their own luck and privilege.
I just happened to have subscribed to Grant Cardone's youtube channel about four weeks ago.
He's a real estate investor and self-made media magnate. Based on advice like Kiyosaki's in Rich Dad, Poor Dad, he buys and rents out apartments. He supplements his income and presence with youtube videos and books and educational materials on sales techniques.
It is definitely true that almost anyone could do what he is doing. And it is also true that if more people were into real estate, the Pareto curve of real estate ROI would be less steep.
The big obstacles are mostly mindset (esp. if you have read Kiyosaki). We almost all have meager financial education. Being broke is definitely not an obstacle. There are communities of people who teach you how to save radically you can build business credit.
Also, a lot of people (particular those with investments in skill, such as software developers) simply don't want to change career paths for something as "pedestrian" as real estate. It's certainly not appealing to me, personally. I wish it was :)
Gell-Mann Amnesia Effect: knowing Cardone as well as I do, I can certainly see the media's bias on this article. They've hyper-focused on one aspect of Cardone's philosophy for the sake of a provocative clickbait article, mushroomed to catastrophic proportions. And note that they've removed all the educational value. They haven't given the information I've given here...
I would argue what he's saying is reckless. I remember "rich dad poor dad" a while back and it had similar reckless messages.
If 9 out of 10 businesses fail, why will your be the one that doesn't? If you want to gamble, got for it. But, it's exactly that. Investing is about spreading risk.
I'm not telling people not to follow their dreams. But be prepared for the consequences if it doesn't work out.
In full disclosure: I'm not currently following my own advice. If my current part-time business meets a few KPIs, I'm planning on withdrawing from my 401k to fund it.
This seems like generally terrible advice. Your 401(k) contribution is pretax, like most retirement contributions. So you're getting serious discount by avoiding taxes that you would otherwise have to pay.
And if your employer matches your 401(k) contribution in any way, this advice is worse than terrible.
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[ 4.3 ms ] story [ 141 ms ] threadA secured, sacred, untouchable account... like a 401k?
The only time money should be pulled out would be for a serious emergency and even then as a last resort its pretty stupid as bankrupcy would make more sense as bankrupcy courts can't go after your 401k.
If you're regularly pulling money out of your 401k then you're doing retirement planning wrong.
The purpose of a non 401k is to invest so you don't have to wait until you are 65 to retire.
I think the most sensible approach is to contribute enough to your 401k that you max out an employer match (hopefully you have one of those), and then invest the remainder of your savings in the market.
But waiting until you have 100k in cash before you do something with it seems crazy to me.
The theory is that without a healthy emergency fund, you won't take risks on better investments later on.
I buy into this as I played it pretty safe until I had a year or two's income saved. I then decided to do my own thing for a bit, and now I'm running a healthy business that I wouldn't have been otherwise (basically a freelancer to business owner transition).
This Yahoo writeup is poor compared to the original, but what he means is that once you have your emergency fund ($100K in this case), put the rest of your money into "untouchable" (not literally, but that's how you treat it) places so that you can make investments with it later (in Cardone's case, nearly always property purchases).
"... To this day, at least twice a year, I am broke because I always invest my surpluses into ventures I cannot access."
I assume this is just poor reporting.
He misses a massive thing about the 401K.. companies may match and It can lower your taxable income. If you are really wealthy this matters little but if you are that magical $250K putting money into a 401K is probably worthwhile.
But in general I sort of agree that the 401K is massively overrated. It is just a reminder of how messed up the tax codes are. IMO just make zero loophole flat tax percentage on income. No capital gains tax. Just a percentage tax on income. If someone tries hide income go after them hardcore.
Owning rental property IMO (ie depreciable asset) in the right locations I found more effective than a 401K and many retirement accounts but I still have old 401Ks and even a Roth IRA on autopilot. The US embraces property ownership too much (tax deductions) which makes investing in other ventures less desirable (which probably hurts the country overall).
Exactly. Most match up to 3.5%-5% - which is a lot of free money (and this doesn't even take into account if you invest your 401k/IRA)!
Since the author advocates putting your money into a savings account instead, author is forgoing a lot of free growth, while gaining virtually no security.
You're aware the tax brackets are graduated right? Only amounts over the bracket are taxed at that year, not your entire income for that year.
I get what the guy is saying, sort of, but it's also the stupidest advice ever for most people. Saving $100,000 in a savings account is a whole lifetime of savings for many people. Meanwhile you're earning nothing on it, and it's not tax advantaged.
Typically, you'd put the money someplace where it does work for you (ie. earns more money).
Parking it somewhere where it does nothing can actually harm you since inflation will eventually diminish the value of your parked money, even if it's the same number of dollars. This is even true in most savings accounts since they pay so little interest.
Essentially, the author's advice is generally the opposite of what you'd normally want to do.
My problem with the article is that it's missing the important piece, which is the types of opportunities this guy is talking about. My personal experience, is about once or twice a decade a good investment (10% APR or better with low risk) comes my way. Housing is an obvious one in a several areas, but I've also seen business opportunities as well.
I'd say it's not great advice in general for most people though. You have to be vigilant for opportunities, and for most people, if you already have a mortgage, 401k is often better than IRA since it's matched (be careful of 401k with >1% annual fees, there's an inflection point where lifetime fees costs more than the matching).
However, one minor nit-pick:
> 401k is often better than IRA since it's matched
Some IRA's are matched as well. SIMPLE IRA's for example, are effectively like a 401k for the user; your company still matches up to some percentage, although you gain some freedoms in being able to take your IRA account to any investment company, not just the one your company chose. SIMPLE IRA's are cheaper and easier for a small business to run for their employees.
The point of a 401k is that it is tax advantaged and the money is there when you get old, when you need it.
I can understand piling money in a bank if there is something you plan to do with it. But piling 100k in a bank when your only plan is "so NOW I am ready to do something with it" is some of the dumbest financial advice I have ever seen. Even if this guy is good at making money, he must be even better at spending it, and the tax man is going to be his biggest payee.
Huh? Assuming this is all after-tax money and isn't earning anything, what would you be paying taxes on exactly?
A bank account is the absolute worst place to park any significant amount of money. The only reason it's better than a mattress is you don't have to worry about the bank catching on fire.
Personally I think a Roth IRA is the better deal from a tax standpoint -- pay taxes on contributions and then you're done. With a long enough time horizon and a little luck those contributions will be dwarfed by earnings, and I would rather pay taxes on the lesser amount.
A savings account earning >=1% interest is a negligible tax burden. What you lose from inflation is far greater than what you pay in taxes. Even so, saying it's "the absolute worst place" to put money is beyond hyperbolic.
In some situations, you may be earning negative money! Inflation may beat whatever measly fraction of a percent your savings account earns in interest.
If you're content to leave a pile of money in an account you can spend from whenever necessary, why not at least use a Money Market? It's slightly better than a plain old savings account, but not as risky as other investments. Or, setup revolving CD's, so your money is at worst 30 days away.
A regular savings account is simply not a good place to park that much money. It's the safest, but that safety comes at a cost.
His core message is about increasing income through huge effort above anything else. So if you're making $50K, it's all about doubling down and hammering your way to $100K, saving the difference in the bank, and then once you have that emergency fund, save to invest.
As you suggest, the majority of people can't or won't do this so the advice isn't really viable for the majority either.
Not even many college educated Americans. His accumulation to 100k was a few years, saving 40% of his after tax income since he wasn't paying down debt.
That's wonderful for him, but I don't think it's mass advice to give back to the world. It's just sort of a 'glad that works for him'.
For most people 100k before putting anything into your 401k is overkill, but for someone who wants to buy a house in SF it probably isn't.
This is not what he's saying. The premise of the argument is that with $100,000 (or, if that's a lifetime of savings, $20,000) you can earn more by investing this in yourself than your 401k would.
He asserts that this is true because that's what he did, and it worked for him.
I would counter that this sort of good result does not work for everyone. If there was such a foolproof investment technique (Flipping houses? Picking stocks? Some secret in the "How to get rich quick" book he's selling?) then your 401k managers would do it.
Many entrepreneurs and small business lose money, and you can't extrapolate the results of a few successes over all potential entrants, except as a distribution. A few angel investors have made this work, but that doesn't mean everyone can do it.
It all comes down to [being able to] taking risks and having the funds available when opportunities arise to be able to. Without a "risky opportunity" fund then one can't participate in high risk high reward opportunities.
However, if one has a company match to their 401(k), why couldn't someone contribute to their 401(k) to get the max "free" match and then if an opportunity arises one could do an early withdrawal of some funds to pay for it? Yes, you'll pay taxes and penalties but if you view the companies match as free money and it covers those taxes and fees, then are you really any worse off then never having contributed? Until an opportunity presents its self you're also getting returns on the free company match money.
Thoughts?
If you want to participate in high risk high reward opportunities, create a separate account for it and consider it "throw away" money from the beginning. (Your high risk opportunity might pay off, but don't count on it.)
his contribution was 638k past 10 years. employer contribution was 87k. And bulk is in 401k and individual after tax, not Roth.
In my opinion, the sad truth is that not everyone can be rich. As if everyone was able too be rich, it would be easy, and if it was easy, it wouldn't be valuable, hence you aren't going to be making lots of money and become rich!.
As an aside, take a guess what savings plan will leave you with the most in the end: At 7% interest, with an annual addition of $20,000 a year for 40 years. Or 7% with an annual addition of $40,000 a year for 30 years?
If a future politician 20 years from now decides that printing money is great for the economy, you're screwed if you go the savings account route.
Politicians control the world. They can screw you in many ways, like bombing you with remote missiles from a drone strike. Or taking away money.
Ultimately, if you don't want the government to have any ability to affect the value of your investment then canned food and ammo are the only asset classes you're left with.
I'm saying do all of them. Tax advantaged, non-tax advantaged, mortgage, you name it. There's really no wrong answer. The bigger item is saving in general.
Regarding 401k, Roth IRAs, and other tax exempt/deferred account with withdrawal penalties, I'm all for them. If nothing else it makes you lock away the money where you can't get it because otherwise, shocker!, you will. Those account types make it easier to pretend you don't really have that money as the fear of paying the 10% early withdrawal penalty is enough to knock sense into people.
Is this risky? Not at all. Will it give you a huge return? Maybe over 50 years, but not in the short term.
But it's better than leaving it in a savings account.
The one time that I decided not to contribute to my 401(k) was when I had just graduated and still had some credit card debt and my salary was low(so the value of the company match was minimal). Getting rid of the debt was more important to me than saving a little for 40 years in the future. Arguably, this was still a bad idea, but mentally, not being in debt was important to me at the time.
He advocates using a HELOC as your emergency fund, but that only works if you have home equity.
[0] https://personal.vanguard.com/us/funds/snapshot?FundId=0585&...
[1] https://personal.vanguard.com/us/funds/snapshot?FundId=0584&...
Yes, but you don't get to put it back in. If you take out, say, 20k, thats 20k of tax advantaged space you never get back. That being said, I max out my Roth IRA every year and consider the ability to withdrawl penalty free a last line emergency source of funds.
I've always had a problem with saving for retirement. I'd rather spend money when I'm younger and can enjoy it, than when I'm old and can't enjoy a lot of the things that I could when I was younger.
I've also never been big on chasing money, either through climbing the corporate ladder or entrepreneurship. I'm just not interested in that stuff, and get burnt out before long working in a career I don't enjoy, so I wind up taking years off when I can afford it, and that eats in to my savings. My investments have never worked out either. I'm just not good with money.
Yes, I know a lot of people are going to suggest that I should put my money in to an index fund and forget it. But I've never been able to trust that the market will keep going up. Of course, I've been proven wrong so far. But how much longer will it keep going up? No one knows, and I really don't know why some people pretend they do. No amount of statistics are going to guarantee that you'll have more money when you take it out of your index fund than when you put it in. And plenty of people have been burnt by the market and watched their savings burn up.
A lot of people talk about investing as if it's guaranteed to make money for them. But it's not. You could lose every penny you invest, and wind up being worse off than if you didn't. It's happened to me before, so I'm really wary of "investing" (ie. risking) my money.
So I'm kind of resigned to not having all that much money left when I'm too old or sick to work. And then I'll probably die. But at least I'll have lived somewhat by then.
That is fine and all if you don't have family (ie kids) but if you do you really should put money away so that you don't become a burden later. Right now my generation and a little older (Gen X-ers) have parents that were slightly irresponsible with money (buying ridiculous houses and double mortgaging etc).... and now when they get sick and old guess who has to pay. One might argue you that is fair but it certainly wasn't the case for the previous generation.
The grandparents (ie greatest generation or whatever they call the war/depression generation) typically saved up.
This is a good thing because wealth takes time to build up. Our country did not become wealthy overnight.
He's a real estate investor and self-made media magnate. Based on advice like Kiyosaki's in Rich Dad, Poor Dad, he buys and rents out apartments. He supplements his income and presence with youtube videos and books and educational materials on sales techniques.
It is definitely true that almost anyone could do what he is doing. And it is also true that if more people were into real estate, the Pareto curve of real estate ROI would be less steep.
The big obstacles are mostly mindset (esp. if you have read Kiyosaki). We almost all have meager financial education. Being broke is definitely not an obstacle. There are communities of people who teach you how to save radically you can build business credit.
Also, a lot of people (particular those with investments in skill, such as software developers) simply don't want to change career paths for something as "pedestrian" as real estate. It's certainly not appealing to me, personally. I wish it was :)
Gell-Mann Amnesia Effect: knowing Cardone as well as I do, I can certainly see the media's bias on this article. They've hyper-focused on one aspect of Cardone's philosophy for the sake of a provocative clickbait article, mushroomed to catastrophic proportions. And note that they've removed all the educational value. They haven't given the information I've given here...
If 9 out of 10 businesses fail, why will your be the one that doesn't? If you want to gamble, got for it. But, it's exactly that. Investing is about spreading risk.
I'm not telling people not to follow their dreams. But be prepared for the consequences if it doesn't work out.
In full disclosure: I'm not currently following my own advice. If my current part-time business meets a few KPIs, I'm planning on withdrawing from my 401k to fund it.
And if your employer matches your 401(k) contribution in any way, this advice is worse than terrible.