The market has made a nice return from its lows several weeks ago. The storm has seemingly calmed, at least to some degree. The interesting fact is that nothing has really changed. We are still facing the same economic issues we where three or four weeks ago. My point is that the uncertainty still remains.
With the uncertainty still in place, the 401K is a champ! Here are three reasons why I love the 401K during these rocky times.
1. It’s a Dollar Cost Averaging Approach
This is my favorite part of 401K investing. The ability to buy set amounts at regular intervals is a wonderful way to smooth out the ups and downs of the market. This allows the investor to buy during the down times of the market, which leads to wonderful returns! If you are a 401K investor, uncertainty and market instability is your friend. Equities are on sell, and you are buying!
2. It’s Automated
We all live in a busy world, and the simpler we can make our life the better off we are. The 401K is an easy way to automate your way to a successful future. Usually folks who contribute to their retirement don’t even miss the money they are socking away for the future. The money is quietly working and growing while most of us are working to keep up with life.
3. Tax Breaks
The money that gets invested into a 401K is pre-tax. This means it will save tax dollars. Ex. A person in the 25% tax bracket who contributes $10,000 into their 401K will reduce their tax burden by at least $2500. That’s a 25% return on your money before it even starts working for you in your portfolio.
Who knows which direction the market will move over the short term? Who knows what the economy will do next? That’s the beauty of 401K investing. Even if things get bad you have the ability to take advantage of the three reasons I love 401K investing.
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If a 401 Roth is available, that is a way better deal.
For one you do not have to pay taxes down the road.
2, you don’t ever have to withdraw the money so it can keep growing.
While your comment is spot on regarding the benefit of a ROTH 401k, I must caution that it’s not right for everyone. The tax situation of each person/family is unique and requires a big picture view as to what would make the most sense at the time of investment, as well as, the time at distribution.
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