Stop Messing Up Your 401(k)

In this episode, we break down:

• The biggest mistakes we see investors make inside their 401(k)'s

• What actually matters (and what doesn’t)

• Simple strategies that can make a huge difference over time

If you’ve ever wondered whether you’re doing your 401(k) the right way—this one’s for you.

Are you on a strong path to Retirement? Take our free retirement readiness quiz today to find out.

https://lifegoalinvestments.com/retirement/

Transcript

SPEAKER_01 0:00

From Wall Street to managing hundreds of millions in client money, Nick and I use our alphabetic soup of credentials to discuss the investing and tax strategies that actually work. Oh, and we played Division I college football together, so strap it. This one hits hard. Let's go.

SPEAKER_00 0:21

Alright, everybody. Welcome back to another episode of the Life Goal Podcast. Today, Brett and I are going to be breaking down uh what we think is is a core part of every American's retirement plan, which is the proper utilization of the of the 401k. Um looking at the news here, there's been a lot of proposals and legislation coming down the pike uh with some changes to 401k plans in general, including alternative investments like private equity, crypto, uh, plus a lot of ideas about penalty-free withdrawals for home down payments. So we're gonna kind of just cover cover some best practices as to what's the best utilization of a 401k plan, um, and you can kind of discuss some of these potential changes that be could could be coming uh for your retirement plan. So let's look at uh, you know, kind of why this matters now. We've had uh in 2026, we've got new contribution limits that came out. We got new rules for catch-ups and uh again evolving policy under this administration. So let's look at the the 2026 contribution limits, just hit quickly hit these uh in terms of employee deferral. Uh your contributions annually set it at$24,500. If you're above the age of$50, you get an additional$8,000, bringing your grand total to$32,500. And if you're between the ages of 60 and$63, you get the enhanced super catch-up uh of$11,250, bringing your overall plan limit contributions up to$72,000. So there's uh there's adequate room if you're if you're coming up to uh to retirement here uh to try to get get a lot of that money uh put to work in the markets in that retirement plan. Um looking at just some some stats that came out from Empower and Fidelity, the big 401k plan sponsors that are out there. Um Americans have been doing a great job um contributing to these plans. Uh according to Vanguard, the average contribution rate from employee plus their employer match averaged nearly 12%. Um Fidelity was a little bit higher at about 14%. So people are definitely taking advantage uh of these plans, and it's in our opinion, uh is is the right move to be doing. So um just kind of some best practice practices we can think about uh when you're looking at how much I should be contributing to the plan, uh we always recommend making sure that you're gonna be able to capture the full employee match. Um that I think that's a a crucial aspect. It's free money uh that you're that you're giv being given that's gonna be able to compound over time and can make a huge difference over the life of your your working career. Um, most companies are gonna auto-enroll you into the plan, so you don't have to worry about that too much unless you work uh at a very small company. But uh just making sure that we automate our contributions uh and and automate those annual increases uh to keep pay pace with inflation, uh I think that makes a lot of sense. Uh I think the question we get asked most from from our clients and when they're looking at their 401k plans uh is about the asset allocation and the diversification within that. Brett, what's kind of you know your thoughts uh in terms of how folks should be putting money to work within those 401k plans?

SPEAKER_02 4:03

Yeah, absolutely. Generally speaking, when we're when we're chatting with all these different you know, clients and friends and family and everybody else that that wants to talk about investments, they I think there's a a pretty um broad-based misconception of how to utilize the investment lineup within a 401k. Uh, and generally speaking, just to you know put it all in in one you know, one short sentence here, 100% into the target date is our recommendation. Um, obviously, everybody has unique scenarios, and we don't want to make blanket statements for compliance purposes, but generally speaking, these target dates are designed to act as a one-stop shop for the typical investor. And they are diversified in their own right, right? So a target date is actually a fund of funds. And whether it's managed by, you know, whoever it may be, it may be Fidelity, maybe Vanguard. Obviously, there's you know all the big T Row Price, BlackRock, many of the big institutions have their target dates, and you'll find uh either one of those firms or a different firm inside your 401k lineup. And it's a it's an odd thought as an investor to put 100% of your 401k dollars into one fund and think that you're diversified. But this, these funds, these target dates are designed with the thought that you're putting 100% of your assets within the 401k into them, right? And they are properly diversified and they are actively managed and they are rebalanced. So they take everything out of the hands of the investor, and that is very, very powerful. And it allows you as the investor to uh, you know, look at it as as infrequently as possible, and that's probably in your best interest, right? So it's a it's an odd thought to say, hey, I'm gonna put 100% of my money in one fund and I'm gonna be diversified. But these things, again, you are in going into a fund of funds, right? They may have 12 to 15 different funds under the hood of one target date. So if you're gonna retire in approximately 2050, you pick the target date 2050, right? And and you invest in it, and that target date strategy will get slightly more conservative as you get slightly closer to retirement, right? And along the way, it will keep you 100% invested and it will not allow you to hurt yourself. So, you know, even picking on me, right? Pick on me. My wife's a nurse practitioner. She, you know, she obviously has somebody in her family who knows a thing or two about investments, or at least pretends to, as the CIO of an investment firm myself. Her money's in a target date, right? We don't get cute. We just, you know, go into the target date, buy every two weeks, and embrace it. And people will say that they want to customize it a little bit. And I can appreciate that. Hey, I you know, I want to own some SP, or I want to own, you know, a little bit more growth stocks, or I want to pick a couple funds that are in here and I'm gonna make it a little spicier. And that's cool, and that's you know, fine. The problem is, is it becomes a slippery slope. You start there, next thing you know, um, liberation day comes and tariff news breaks, and you you decide, oh, I've been actively managing this along the way. Now I'm going to cash. And we see people all the time where you know they send over their 401k to do a rollover, or we're consulting them on their outside assets that are sitting in their 401k at work and they're 50% in cash or 25% in cash. And that is not how you should be utilizing a 401k. These things are, you know, if you go into the target day, or you're gonna build a uh a cocktail, uh, a multi-asset portfolio uh built by yourself. Um run the thing fully invested, right? Be diversified, run it fully invested, stocks, bonds, um, you know, non-U.S. stocks, get everything in there and and you know, bank on time as your friend and dollar cost averaging. You're buying every two weeks. So yeah, we that's one of the biggest things that we see, uh, and we don't blame people. It is an odd thought to say, hey, I'm gonna put 100% of my 401k, which is likely a very large amount of money for anybody, right? It's relative for everybody, um, into one fund and think it's diversified. But that is the way they were designed, that is the way they're intended to be used. And we would encourage people to do that. So, Nick, are there any pitfalls that you've seen uh folks stumble into uh as it relates to the 401k?

SPEAKER_00 8:24

No, I think the the first one is is the one you just hit on is um is not utilizing those target date funds. And I, you know, I think for some folks uh on that front, it's you know, I don't want I don't want to have that much fixed income in my portfolio. You can just shift back into a a different target date that's got a higher allocation to equities if that's really what you uh want to do, if you're concerned about. Um you know, and I think other pitfalls that that folks are are are kind of falling into when it comes to using these plans um is cashing out when they got a job change. Make sure that we're we're rolling that over into uh a qualified IRA or to your your next next employer. Um and then you know, just making sure, again, that those investment choices, you've got a consistent process. Again, simplify your life, make things easier on yourself, uh, and and just use those target dates. The biggest bonus that you're gonna get, the biggest alpha ad is gonna be that employer match and the pre-tax contributions that you're making to that. So uh I think numbers were like something like 14% uh uh of Americans are maxing out their 401k. The numbers are high, so that that's kind of to be expected. Um but you know, I I would that would be the biggest pitfall is is that folks just aren't putting as much money as as they can comfortably uh in into these qualified plans. I think that's something you want to make sure you're doing and taking advantage of.

SPEAKER_02 9:54

Um just real quick on that, Nick, if if just real quick on that, if you're a young person that's coming in and you have student loans and you may have a mortgage and you may have other things that allow you to uh or that that don't allow you to potentially max it out. If it's borderline and you think you can you think you can make your life cash flow, start with maxing it out, right? Start with maxing it out, see how it goes. Like force yourself into a tight financial situation where not incredibly tight where you get yourself in trouble where you're you're missing debt payments or whatever, but make it so you're having to stretch your dollar. It's it's and and if you can do it, great, right? You can always dial it back. Um, that is what we would encourage, right? Rather than starting with, hey, I'm gonna do 10%. Um, you know, try to push it to the limit, and then if you can't do it, back it down. And then, you know, with the you know, with AI that's out there, whether it's Chat GBT or whatever your favorite platform is, go in there, take your salary, take whatever debt you have that's going on, whether it's student loans, mortgage, car, food bills, build yourself a little mini financial plan and just you know, throw it into the software and say, hey, can I afford to max this thing out? And if I do, how much is that gonna leave me on a month-to-month basis and see what it spits out? And if you think you can make it work, go ahead and max it out and and and see where it takes you. And and if you get to a situation where you're, you know, it's really, really tight at the end of the month, take it down a couple points, right? Take it down two or three, four percent, whatever it may be. Leave it, leave yourself some wiggle room. But you will be very, very, very happy if you look back 10, 15 years from now and you see that my goodness, you know, I've got whatever, 15, whatever, you know, 200K potentially uh in the 401k at that at that point in time, you're gonna be pumped and you're gonna be way, way, way ahead, which is uh what we're trying to help people to listen to this podcast do, is get ahead and stay ahead.

SPEAKER_00 11:41

Yeah, the longer that money is count compounding and in the markets, the more you're gonna have uh at the end of your retirement. It makes get invested early, uh, and again, make sure you're you're contributing as much as you you can be there. Yeah, so when making those contributions and kind of where you're gonna be putting that money to work, there's most employers are gonna offer you the choice between a Roth and a traditional 401k. Now, if you spend any amount of time on Instagram, uh Roths are all the rich, um which and so let's just you know clarify and kind of break those down. Traditional is pre-tax contributions that reduces your taxable income today. You get deferred growth, tax-deferred growth, withdrawals are going to be taxes ordinary income and retirement. The Roth is app made with after-tax contributions, there's no upfront deduction, tax-free qualified growth for the money you have in there, and tax-free withdrawals. Now, I think a lot of people um when making that recommendation, kind of that Roth is the only way to go, uh, are making some assumptions that that make sense. Uh I think they're really baking in the fact that taxes are going to go higher in the future, just based on what's going on here in the United States fiscally. Um it looks like we either have to trip we have to cut spending by a lot, raise taxes, or some combination of both. Um, but I think the th the certainty in which that they're they're making those assumptions uh d doesn't quite add up. It's a very politically unpopular uh political campaign to run on is this that I'm gonna be uh raising taxes for folks. So, you know, I Brett, I think when you're when you're looking at whether someone should be looking to contribute to a Roth uh or to a traditional 401k, what are some considerations they should they should make there?

SPEAKER_02 13:32

When it comes to choosing whether to put your money into a Roth or a traditional 401k, the decision making factor needs to be driven by the amount of money you're making. Okay. If you're making, you know, and this this is has to do with your married filing uh jointly or if you're filing single, obviously we're we're looking at different tax codes, so you need to make an active uh decision that's that's customized to your personal financial situation. But generally speaking, if you're in a lower income level, it may make sense to go with the Roth, right? Where you're paying taxes on those dollars today and it's post-tax money that's going into uh the 401k. If you're in a middle or high income tax bracket, we struggle. We we struggle, right? We're we really, really have a hard time making the numbers make sense. And we have financial planning software that helps us with this, and then the numbers don't make sense to be more direct. Uh, you got to go with the traditional option. You can't afford to pay the taxes up front. So what that ends up doing then is all your money goes into the 401k and it's not taxed. And you're gonna worry about the taxes in the end. Why? Because you're likely in a much lower tax bracket in the end because you're no longer gonna be getting a salary. Another perk to potentially going with the Roth option when you're uh just out of, you know, potentially out of college or just out of school, starting uh, you know, newly into the workforce is there is a one-time exception to pull money out of a Roth 401k or out of a Roth for a home purchase to utilizes the down payment. So that is a nice uh feature. And the reason why that option is there is because you've already paid the taxes on it. So um, you know, that is a scenario where it may make sense. And then also keep in mind if you're on the cusp, right, you can split it. And if you're think about it, if money is going into a 401k, a traditional 401k, it is being taken off your adjusted gross income. So it is going to lower your tax bracket. So the piece that's going into the Roth, you're getting taxed on it, but you're gonna be in a slightly lower bracket than you would be if you put all of it into the Roth, because then it's gonna drive up your adjusted gross income to the highest level because it's all being, you know, captured. So these are the decisions that folks need to look at. Generally speaking, again, just to recap it, generally speaking, if you're brand new to the workforce, you can probably, and you're not making a whole heck of a lot of money, you can probably move forward with the Roth. And the uh, you know, maybe the decision-making um, you know, the driver is hey, if I need to utilize this for a one-time home purchase, my first home, that is the you know, is the uh you know, the straw that tips us that direction. But if you're in the middle of your career or later in your career where you're making more money, then you're going to be making in retirement when you don't have a salary. Embrace the traditional, right? Put it in. Do not tack, do not get taxed on it. Worry about the taxes when we take it out uh a few decades from now. So high level, that is uh that's the advice we have. And obviously everybody should be customizing that to their personal situation and tax code.

SPEAKER_00 16:30

Yep, absolutely. And and um, yeah, I think the uh the a hybrid approach for a lot of folks does make sense. You know, working with with an advisor to help max, you know, maximize uh the contributions there and determine the strategy for what's what's the best approach makes sense. You know, tax diversification can be like portfolio diversification. You want to minimize uh the amount of money that you're you're giving Uncle Sam, um and you want to be making sure that you're you're making those contributions in the in the smartest way possible given your your circumstances. But you know, I think looking at um you know the rules around 401ks, uh they're they're always evolving. They're they're never static. And and right now, uh there's a lot of discussions being had in Washington, D.C. uh. And proposed legislation for for changes uh to 401k plans, uh, everything including um alternative investments being included as as menu options, things like private equity, private credit, uh even cryptocurrencies. Um there's there's been some proposals here for for house down payments and and things like annuities being included in the plan. So um we're gonna talk about some of the opportunities, risks, and kind of ways to be thinking about these things as they continue to evolve. Um, you know, I think the first area we'll go to is is is alternative investments. It's uh it's something we we we talk about a lot uh here at Life Goal and the role that they play within a portfolio. Um Brett, what do you what are you thinking about alternative investments being included in in the 401k K Lance?

SPEAKER_02 18:10

Yeah, we like it. Um we like it. It's a it's a return driver, it's a diversification benefit, right? Because alternative investments tend to have a low correlation to the public stock market. And we have seen it used successfully uh across the you know the big pensions that are out there. You know, as an example, maybe it's New York State or or CalPers, which is the California pension. You'll see a very, very large portion of those portfolios in private equity, right? Uh which is would, you know, example maybe like a SpaceX is a company that would be considered as private equity, or private credit, uh private infrastructure, farmland, timber forests. You're seeing all these assets get utilized in the big pensions, and uh it just they haven't made it into the 401k system yet. And there's a bunch of different reasons why, but we do think that if done properly, it would work well for individual investors if it was put into a 401k. So I guess that begs the question, you know, how would it be used properly or how would it be designed properly? Back to the target date funds, right? So the target date funds, I know that we were we were recommending earlier as as you know the initial um uh idea that should be considered for anybody inside of a 401k is embracing the target date. If you took the private investments, whether it's private equity or private credit or you know, private infrastructure, farmland, these these types of investments, if you looked at them as a piece of a target date, they would then be managed by an institutional investor who fully understands the pros and cons of private investments as well as the liquidity. And they would highly likely do a very good job massaging those into portfolios and utilizing the strengths and being able to avoid the weaknesses. So the primary weakness that comes with private investments is illiquidity. Okay. If we're buying something that is in the private landscape, it is illiquid and it should be it should be you looked at as a buy and hold investment for a long period of time, multiple years, right? So if you were to say, hey, let's put a private equity fund in the 401k lineup, that is a hundred percent, you know, that that line item in your 401k says, you know, private equity fund by XYZ company, and you could put up to 100% of your money in there or some, you know, some fraction of it, but it's a standalone investment, it then needs liquidity guardrails because you can't be putting the money into private equity and then three months later changing your mind and pulling the money back out, right? That money needs to go in and it needs to be there for a long period of time so that the portfolio manager that's managing the private equity fund can take the cash that you invested in it, go put it to work, and have that, you know, work for many years to maximize the results, right? That's that's the the big deal with private investments, is they need time to deliver the higher returns. And they have historically been able to do that, uh, even risk adjusted. They have outperformed the public markets over a long period of time. So that's why when we look at, you know, whether it's private equity or uh one of the other asset classes, private credit, private, you know, private infrastructure, if it's done within a target date, and a target date is a uh an institutionally managed portfolio that is multi-asset, meaning it's got stocks, it's got bonds, it's got non-US stocks, it's a diversified portfolio in its own right, you are then putting uh the allocation size and the liquidity constraints on the professional portfolio manager that manages the target date. And I could assure you that they have the education and background to be able to uh lead a successful results. Whereas if it's done in isolation, just a private equity fund or just a private credit fund, I do not think that the results will be great. Because people will be coming potentially coming and going from the fund, and that is just a non-starter uh when it comes to investing in the space.

SPEAKER_00 22:07

Yeah, and I think that's um you know defeats the purpose of the role that we think these these asset classes play in your portfolio. It shouldn't shouldn't not be a 100% allocation. Uh it's got a role as a piece of that portfolio. And to your point, uh, you know, a 401k, a retirement account is kind of the perfect place, which is why you do see this such a high high allocation to these in in pension funds. You've got a long runway until you're going to be drawing on this money. You know, something like private equity is is kind of a perfect fit for that. Um and again, the from a capital appreciation standpoint, that it's been a great asset class to own over time. You go back to 2004, you know, versus just uh uh publicly the S ⁇ P 500, you know, private equity has almost doubled the returns over that that 20-year time period. So I think for for Americans, we're you know, I think that in the in the study that Fidelity had had pulled up earlier um said that I think 58% of plan participants are concerned uh that they're not gonna have enough to retire comfortably. Uh, this is an assets class within the alternative at uh space that uh that addresses that that capital appreciation side of things. Um, you know, I think one of the the you know I think one of the issues um when folks are looking at this alternative is the inclusion of of crypto uh into the 401k space. Um we've obviously seen some trim tremendous volatility uh out of Bitcoin and and the other cryptocurrencies here over the last couple of uh of weeks. Uh what would you be your your recommendation to uh to the administration or to anyone who was thinking about putting crypto into their 401k plans here?

SPEAKER_02 23:51

Yeah, I hate to say it, but I'm I'm uh I'm not there on crypto at this point in time as it relates to putting it into a 401k. What we need to do is go back to you know the the core benefit of a 401k program, right? It's it's not there to be a speculative asset, it's there to be a long-term compounder. And um we have to understand also, you know, that the individual that is investing in the 401k, they need guardrails put on them, right? I can I can pick on myself. If you uh you know, if I was a 23-year-old, which I was at one point in time, obviously, um, and I was given you know my first whatever$10,000 or$15,000 that was in my 401k, and I was I was left on my own to allocate it, and I had options between crypto, private equity, and uh, you know, the stock market, I I probably would be all huddled into one corner or another, and I'd probably be trying to time the market, and I'd be hopping around. And I can tell you, um, with a couple decades experience investing under my belt that that is not a recipe for success. And as boring as the darn target date sounds, um, and I, you know, and and I would like to think that I'm not the most boring person on the planet. I'm embracing the damn boring, uh, maybe that just means I'm getting old. Uh, but embrace institutional quality assets, right? Stocks that are publicly um that are publicly traded, um, you know, private equity done with uh uh uh institutional quality manager that understands the space, private real estate, uh bonds, non-U.S. stocks. This stuff has been around for decades. It is proven to compound assets for decades. Crypto is not there yet. Crypto is it's been around for a couple decades, but you can't have 50 to 60 percent drawdowns on a whim and expect the retail investor to have a positive result. You know, we are trained to buy high and sell low, right? That is a problem, and that will be the results if this is in the portfolio. We, you know, you don't have to go back far. You go back to 2022 and look at the performance of the average retail investor. Uh JP Morgan quotes it at 39%, uh negative 39% return. SP was only down, uh was only down about 20, right? So you had um, you know, 2x the downside, and that's because it's an emotional exercise and people want to buy high and sell low. And if you have an institutional um portfolio management team that's designing and layering in the alternatives, even if it were to be Bitcoin, right? Say Bitcoin does get through the approval process process in Washington and it does go into a target date fund, um, it's gonna be in there at a very small allocation, right? They're gonna have it in there at a two or three percent max allocation. That's a completely different exercise than letting, you know, a um, you know, a 22-year-old put their full 22k, which I 100% will happen, uh, you know, put their full 401k allocation into Bitcoin. That's you know, we just don't want to see that happen. That's not what it's designed to do. So I would probably press pause there. Um, and same thing on you know on the annuities, Nick. We can we can talk a little bit about that, but generally speaking, this is not a place for annuities. Uh, we're not huge fans of annuities, and I'll just kick it over to you, Nick, to uh you know, to take us down that road a little bit.

SPEAKER_00 27:05

Yeah, I think uh that that's been the most recent proposal that's uh that's been getting kicked around in DC, uh, which is potentially adding uh annuities to to the 401k plan. Um this is being pitched as a way to secure lifetime income off of someone's retirement assets. Um it's obviously being lobbied for pretty hardly by the uh by the insurance companies. Um and listen, for for certain folks, you know, depending on how that fits into your entire financial picture, that that may not be the worst thing by having a you know guaranteed income stream for life. Um but there's this the same set of issues that face a traditional annuity face this one, right? Which is uh you're you're you're addressing that longevity risk potentially, uh, but you're really locking yourself into you're reducing your options um and the flexibility that you have in retirement. So, you know, what what what those are kind of my two cents on it, I guess, is is that it it sounds great. It's it's a very sellable idea to to someone. It's almost like you know, it's like it's like what a pension used to be. You get you get your your income stream for life, but uh there's ways to do that uh without necessarily locking that money up into that type of vehicle, right?

SPEAKER_02 28:29

Yeah, I think you're paying for um your your the fees are incredibly high on annuities. And what you're doing is you're paying for the uh emotional support that you don't really need, um, where they're put you know there's they're they're claiming to protect uh the downside and give you the guarantee. But in reality, if you look at a multi-asset portfolio that's properly designed, whether it be a target date fund that is properly designed, because there's an institutional quality money manager designing it with a huge team behind them, um, if you look at it over any reasonable time frame, three years, five years, 10 years, 15 years, uh, they always deliver positive results, right? I'm not saying, you know, go all into one subsector of the of the stock market and and and claim that that's always going to deliver positive results. But what we can what we can hang our hat on for sure is that annuities are incredibly expensive. Okay. So when we're in a 401k, one of the biggest things that we have in our corner is time, right? And then you're also buying every two weeks when the paycheck comes in. So if the stock market goes down a little bit, you're buying, you're buying additional shares. And somebody may say, well, yeah, I'm gonna do this and you know at the end of my career. Even at the end of your career, you're still buying along the way. And the target date funds are gonna cheat you towards bonds at that point in time, anyways. And bonds, generally speaking, you know, almost always deliver positive results as long as you give them a little bit of time, right? And 2022 was an exception. Um, but generally speaking, bonds have delivered terrific returns, and you don't have to pay an arm and a leg for them. You're gonna see the the fees associated with annuities is comparable to the fees associated with private equity. Private equity delivers 12, you know, if you go back and you look at history, has delivered 12.5% return per year. Okay, going back decades, an annuity is gonna get you, you know, a third of that. So you're you're paying somebody, you know, two to three percent per year for you know what is a you know a five percent return, and just that is a poor use of a 401k. What we should be doing is uh embracing diversification, you know, embrace the target date. And if you're not a target date fan, at least get yourself a properly diversified portfolio, including U.S. stocks, nuanced non-US stocks, and bonds. And uh you're buying every two weeks, um, be willing to have a little bit of volatility in the portfolio and avoid if if annuities do end up in there, you know, avoid them. We are are not fans. Uh the fees are incredibly high. And as a fiduciary, we do not see a um you know many scenarios where it makes any sense uh to put somebody in an annuity. And I and I know that's kind of a blanket statement, and and we're not allowed to make those. So obviously to each person they got to look at their situation. But at Life Goals, not one person has been put into an annuity, and folks have, and there's across hundreds of families, and folks are very happy with the results, and and there's been some bumpiness in the markets over the last few years to uh you know to test drive it. So uh embrace the longevity, embrace the concept where you're buying every two weeks into this, and um, and avoid the fees.

SPEAKER_00 31:40

Uh so looking at at um continued evolution of of kind of some legislation that's coming down the pike here, um, the administration floated out the idea of penalty-free 401k withdrawals for down payments and closing costs uh just just last month, um, which I think is is a little bit of um uh uh window dressing here for the administration uh and the Republicans. They want to make sure that they're at least looking to be addressing the affordability crisis uh that's going on in the United States uh in regard to housing. Um but let's say it does gain some momentum and get pushed through. What what are your thoughts on someone taking money from their 401k and putting it down on a house?

SPEAKER_02 32:30

Yeah, so you gotta you do have to give the the Trump administration a pat on the back for for you know literally throwing the kitchen sink at everything, right? They're trying, right? Doesn't mean it's gonna be the best idea. Um I can I can tell you that if you unlock the trillions of dollars in 401ks and allow that to then go purchase homes, it's not going to make homes cheaper, right? Um the the you know the price the price of homes is a supply and demand issue like every other asset on the planet, and the supply is is really the problem here, which is a really hard fix, right? It's not easy to um make the economics of building homes uh easier, and that's where the supply is going to come from, right? So uh the supply side is not going to improve. So if you cut loose a bunch of cash from 401ks, it's it's just gonna drive up home prices. Um, but it's you know, it's an idea that's worth kicking around. And if if they put some guardrails on it, potentially there's a there's a way that it can be um set up where it makes sense. Potentially, you know, the the Roth piece of it uh could be utilized, or maybe they say, hey, the 401k, you could use a percentage of the 401k if the 401k is over X dollar amount. And you know, we start walking a fine line there when we start telling people how they can spend their money, and and you're you know, you debate whether or not it makes sense, and nobody wants to be over-regulated. But if you're going to allow people to, you know, to pull money out and and and go ahead and push it towards a home, I would just caution the home buyer, um, especially young people. I I was actually cautioned early in my career, and so was Taylor. Um, Taylor was actually shipped out to Indianapolis, Indiana for his for his career, and he was paid a lot of money when he was out there. And and our management teams at that point in time, I was shipped to New York City, I was in Midtown, and we were making a really healthy living when we were very young. And our management team specifically said to us, do not buy a house. I know you can afford to buy a house, do not buy a house. The reason why is because life is gonna change, right? You're gonna get married, uh, you may have a kid, uh all these things could lead you to a different city, to a different to a different state. Uh, your job is gonna change. All these different variables can change. If you then took your money and tied it up into a home, that home is not liquid, right? And and and you can say, Oh, yeah, you know, real estate is liquid, just put it on the market and sell it. As soon as you put something on the market, you know, you have your your heart set on at price X, and if the bidder is coming in$50,000 under your price, you know, your liquidity is gone, right? Until you're gonna come down and meet that price. So there is no liquidity on on real estate in reality. Um, it doesn't, it's not quick, anyways, unless you're just gonna you know accept a low offer, which you can always do that, but nobody's gonna do that because that doesn't make a lot of sense. So if they put guardrails on it, it's a maybe, but it's definitely not going to make uh, you know, it's not gonna solve the home affordability challenge. It's gonna do nothing other than push uh house prices up and also go back to the start of this conversation, which was the average American only has$100,000 in their retirement. We need to embrace the 401k system. Um, you know, let the thing be. Don't look at it, dollar cost average into it, max the baby out, uh, let it grow, don't touch it for decades, and you'll be absolutely set up when it comes time for retirement. But if we keep messing around with it and figuring out different ways to actively manage it or pull money out of it or take loans against it, or, you know, do things that could potentially harm it, um, you know, it's it's a step in the wrong direction. So I would say that um, you know, the administration has an uphill battle with that, and that's that's probably why they walked it back a little bit. Um, but yeah, it's you know, it's a it's a it's a creative thought nonetheless.

SPEAKER_00 36:12

It is. I think it it it's uh action is is better than no action, at least uh at least politically speaking. Um, but again, I think there would be a massive opportunity cost from the loss of count compounding that you're gonna you're gonna experience by having that massive withdrawal uh early on in your career. But um, you know, again, individual circumstances, it may make sense, but generally speaking, um not sure that's gonna be the right decision for most people. Um and we'll see if that continues to move forward.

SPEAKER_02 36:42

So in conclusion, what we're recommending is go back to your 401k platform, right? Go online, log in, make sure that you know what you're invested in, right? And if if you don't have a really great answer as to why your investment allocation is what it is, embrace the target date. You're gonna get professional uh money management there. There's a professional institutional money uh asset manager that that's designed that portfolio. And that will keep you 100% invested and you will not have to mess with it, right? As they say, keep it simple, stupid, keep it simple, stupid. So uh we would definitely recommend that. Also look at your mix, whether you have a combination of Roth and traditional 401k. The younger you are and the less money you make, you may want to lean towards the Roth. As you get later into your career and you're making a lot more money, you know, you're it probably makes sense to go 100% into the traditional. And then as you start to see these new evolutions to the 401k come out, whether it's private equity, Bitcoin, or the potential to pull money out of the 401 and spend it on a home down payment. You know, generally speaking, we would recommend leaving the money where it is, let the money compound for you, right? These 401ks have been very successful wealth generation machines for decades now. They work great if people leave them alone and dollar cost average into them every two weeks and max them out if they can. As these new things come up, you know, go slowly, don't go all into anything. And then if there's a home buying opportunity that presents itself, just press pause, you know, speak with your loved ones, uh, speak with a trusted friend that you think has an understanding of the financial system or potentially even your financial advisor, and just make sure you're making a calculated decision, uh, not only to not only on the home purchase and how it's going to impact your 401k, but also are you gonna be living in that location long term? And if you're not, you know, definitely don't do it. So thank you all. Um, and we will look forward to chatting with you again next week.

SPEAKER_01 38:35

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