No. of Recommendations: 0
I have a 401k at work, but my employer doesn't put any money into it.

Is it better to put all of my investment cash into my 401k which has been earning about a 13% rate, or to stop investing in my 401k and buy some blue chip stocks like Merck or Microsoft or Disney and hold them until I retire in 15 years?

Print the post Back To Top
No. of Recommendations: 0
Greetings, jwheeler, and welcome.

<<I have a 401k at work, but my employer doesn't put any money into it.

Is it better to put all of my investment cash into my 401k which has been earning about a 13% rate, or to stop investing in my 401k and buy some blue chip stocks like Merck or Microsoft or Disney and hold them until I retire in 15 years?>>

Well, I'd say you have to do a comparison of returns. That tax advantage is important in the 401k, but in the absence of a company match it isn't necessarily the best place to put your money. You say you're getting about 13% in the 401k. Well, on a $100 investment there, in one year you would have $113. If you took it out and were taxed on it at say 28%, you would end up with $81.36.

If you don't use the 401k, you would only have $72 to invest because you have to pay the taxman $28 of the $100 you now take as wages, and whatever that $72 earned would be taxed, too. That means that outside the 401k, you have to earn about 18.06% on that $72 (given a 28% tax rate) to net after taxes the same $81.36 as the 401k. Will your stock choices do that for you or better? If so, then leaving the 401k makes sense. If not, then it doesn't.

Regards.......Pixy


Print the post Back To Top
No. of Recommendations: 0
Putting money into the 401K gives you an immediate tax advantage that is an automatic benefit. Also, you get the tax deferral.

As far as investing in stocks that had been going up in the past? heh - who can predict the future?
Print the post Back To Top
Advertisement