Several Surprising Reasons Why Your Retirement Plan May Be Your Riskiest Investment

Financial institutions have a distinct genius for advertising. They are able to get millions of Americans to hand over their money with extremely little thought taken, incredibly little knowledge of the so-called investments offered, and even less control of their investments.

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It's one of the riskiest gambles for most individuals. Read the following reasons why I say this, and ask yourself if it's time to reconsider your 401k.

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1. Limited Opportunity For Cash Flow

Qualified retirement plans, which include 401k's and IRAs, don't supply immediate cash flow, which usually means that you cannot benefit from them through velocity and utilization. The theory is that letting the money sit allows it to compound, but for most people this really means that it stagnates.

Many people won't choose to utilize these funds even when a particularly compelling opportunity arises that can make them far more than the 401k would, even accounting for the penalties. This means that numerous legitimate opportunities are passed by as individuals stay "in it for the long haul."

Instead, use your 401k to invest in equity capital markets. Just make sure you steer clear of investing in shell companies. A shell company may come with a long list of "clean up" problems.

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2. Lack of Liquidity

The money is tied up with penalties attached for early withdrawal. Although there are a few technicalities that allow penalty-free withdrawals, the restrictions are so numerous that very few know ways to get around them.

When you find yourself in financial crisis and other alternatives do not appear to offer a practical solution, you must begin considering filing bankruptcy as a way to protect yourself and any assets you might want to keep from the creditors.

3. Market Dependency

The performance of the funds will depend on market factors that most people do not have the knowledge or the ability to understand or mitigate. This means that your retirement plans are based on unknowable projections, making for a dangerous and uncertain planning environment.

4. The Match Myth

"Take the match. It is a guaranteed 100 a year, according to an average return of 8% annually, but that means that some years will probably be lower, some will be higher. If in one year your fund is down 10%, you're tapping into your principal to take your own interest withdrawal.

The financial climate at this time is not stabilized. Even large businesses have to confront the fluctuations that come their way and the only thing that keeps them going is survival.

At that point, you have only two choices: 1) begin withdrawing principal, or 2) leave the cash alone until your funds are up once more.

5. No Holistic Strategy

I've witnessed on many occasions, people whose finances are in shambles and although they have much more pressing needs, they diligently contribute to their 401k. They've been convinced to do so, of course, simply because of the match, tax deferral, and so on. It's like a person attempting to take care of a scraped knee when their wrist is slit.

What they really need is a macroeconomic approach to their finances that will help them identify, prioritize, and manage all pieces of their financial puzzle, with all pieces coordinated and working together.

Conclusion

Qualified plans are marketed on such a wide scale since individuals promoting it have vested interests and their interests do not necessarily coincide with yours.

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