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Tuesday, February 4, 2014

401 Ks are a scam

I have heard various people talk about how getting matching employer contributions in 401 Ks is free money and that the long-term stock market trend is 8% annually. I distinctly remembered hearing the 8% line when I had a consultation with an Edward Jones broker.

The long-term trend for the stock market since 1910 is closer to 5% annually, and when you adjust for inflation and capital gains, it bottoms out at 1% annually.

One measly percent. At that rate, it would take about 69 years for a given sum of money to double in value. Most people only get about 40 years to save before retirement.

 Given the random walk of the market, one bad year can wipe out decades' of gains. At least when you buy gold or land, you don't have to worry about it becoming worthless overnight. And even if you put money under a mattress, at least you'd still have the paper no matter what happens with inflation. But when you set up a 401 K, you get nothing except the hope that perhaps someday it will be worth more and you will be alive to enjoy it.

So what to do? You can't just let it sit in a bank- inflation will eat it. The best thing is to plow money into something that will never be worth nothing. The only things that fit that criteria are things like gold, silver, collectibles, and land.

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