Broker Check

Why Investing Should Include More Than Your 401k

| September 30, 2019

I hear quite often how people believe they are on path to reach their financial goals because their company offers a 401k.  It is true that this may be the easiest means for employees to be introduced to investing; however, many of those same people are not aware of how much their saving, how much they need to save, what they should invest in, what they currently are investing in, how do they access their investments, and what do they do when they want to start collecting an income.

I have visited many people that have had monthly budgeting problems, and their need for liquid access to cash to pay down credit card debt, or pay money down on their auto loan purchase becomes very transparent.  When this time comes, having disproportionate amount of money in a 401k can be an issue.  Sure, the intent is to save this money for retirement.  But, if this means that you will increase your credit card balance because you're running short on cash every month from the reduction of your paycheck to fund your 401k, you may want to evaluate what percentage of your portfolio should be in qualified or non qualified investments.

What other solutions are there?  Many people will put money in a checking account, savings account, or bank cd.  This can be a solution for the standard recommendation of 3 - 6 months of expenses you may need in case of an emergency.  However, I have talked with many people that will continue to accumulate cash in a checking account simply because they don't know what else to do with it.  If you are someone who is extremely conservative or is already retired, this accumulation within a checking account may not be a bad thing.  However, when I talk to those in their 20s, 30s, 40s, and even 50s, they may be sacrificing return of their money because of a lack of understanding or a lack of effort to seek out other options besides their checking or savings account returns.

I have helped establish many liquid investment accounts for clients over the years, and a common response I still get is "I didn't know this was even an option."  Yes it's true, you may not get the most optimal benefit when you visit your CPA during tax time; however, there is a benefit to having access to the funds if you need it to replace your roof or pay off unexpected medical bills while still chasing a return on your investment.

If you or someone you know are in this situation, I would love to visit to help determine if this is an appropriate solution.