Why You Shouldn't Invest In A 401(k) In Your 20's

"The Power of No" author and podcaster James Altucher stopped by to explain why he thinks investing in a 401(k) is a complete waste of money for young people. It's a controversial opinion. Watch the video and then read one smart response here.

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[GrLayks]

I started contributing to a Conventional IRA at 18, when I was in the Army. Converted it to a Roth. Rolled my 401(k) savings into it w/ every job change.  After 25 years, it was still not enough to support even an impoverished retirement.  SOOO...I cashed out, paid a gigantic IRS penalty, and invested in a company I believed in.  I took the CEO position so I could babysit my investment.  I've made 760k per year for the last 3 years, and no end to this in sight.  It's not for everyone, but it did work for me.  Fund managers be damned.

[Mlogan]

Better to not put all your eggs in one basket- keep the 401K but diversify to other areas as well. And forget about having others manage your 401K - either get a self directed account or just place the money in index funds that have no or very low management fees.

Also the Roth 401K is a golden opportunity since everything you earn is tax free since you pay taxes up front.

[beerad]

This is incomplete and terrible advice for anyone, especially those in their 20s and 30s. At that age with few or no dependents or deductions a sizable portion of your money goes to taxes. Often contributing 4-8 % to a 401k will not change your bottom line (net pay), you will see your federal and state income taxes drop, but not your net pay. So contribute to your 401k, get the employer match, and take some of your net pay and put THAT in the bank like he says. Then if you quit that job you can move it to a self-directed IRA and do something ballsy and creative to start a company, invest in real estate, etc.

[Munkeez]

“The average 401k, they won’t tell you this, probably returns .5% per year. You don’t really make money in a 401k, it’s just tax deferred. When you’re in your 20s what does tax deferred even mean? You’re not gonna see the money one way or another for 45 years. You’re not even 45 years old”

What the hell is this guy rambling on about? He says the average 401k probably returns .5% per year? A quick google search tells you it’s 8-10%. I’m all for investing in yourself, your education, to get better skills, but this guy’s advice seems way off the mark. Investing in a retirement plan from 25-35 years old pays off huuuge down the road due to compounding interest. Just because they play witty sounding harpsichord music over him when he’s talking doesn’t mean he knows something anyone else doesn’t. This is terrible advice.

[MrDan]

Wow....this guy either has no clue or is a liar

[dexhax]

I have always felt this way. The advice for younger people is to invest early. However how much is too much? what If I need that money. do the earnings negate the taxes I paid for my Roth. Will I earn more then I'm expected to loose at some point (almost every 10 years)

[paragon]

The 401k is horrible. At the very least get a Roth 401k or a Roth ira. Even then who knows what congress will try to do to those funds.

Matches are not free people. Why do you think the companies give them out? To be nice? They are giving their employees their share of the taxes so the employees have to pay the tax instead.

Oh and if your under 30 and you think you are going to recieve social security you are living in a fairy tale world.