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Thanks for the quick response! I see I wasn't clear at all in my first post. For the sake of discussion, let's say I have $200,000 in my 401k account with 80% ($160,000) in equity mutual funds and 20% ($40,000) in fixed income. I decide I need to borrow $20,000 to buy a new car. Instead of financing the new car at the credit union I take out a loan from my 401k in the amount of $20,000. Assuming the loan comes from sale of equity mutual funds I have in essence just increased my percentage of fixed income in my account from 20% to 30% (original $40,000 in fixed income plus a loan for $20,000 divided portfolio value of $200,000). My account shows a balance of $180,000 plus a $20,000 loan which is earning 8% interest. What difference does it make if I am "loaning" money to a company in the form of a bond or loaning money to myself. Now if on the other hand my loan proceeds come from a combination of equity and fixed income sales to keep my asset allocation ratios the same, then I have in essence increased my percent of fixed income to only 28%. My whole point here is that by borrowing from my 401k I am simply increasing my percent of fixed income in my account. The loan amount is still growing at the interest rate I am paying, tax free. Pretty Foolish eh?
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