Struggling to make decision

[DollahBillYall]

Hi folks, my wife and I have really been struggling with an issue lately I am soliciting input for. I am 39 and she is 34. We have been maxing out our 401Ks for three years straight and we are considering alternative retirement tracks than the 401K. I am upset with the 401k. Not the returns (12% in the last 6 months), but the fact that:

1. I can't leverage/invest in other biz with it (loan cost is 8%, max 50K, double taxation)
2. I may be in a higher income bracket when I retire
3. I want to retire earlier than 60, as well as does my wife, or at least have the option to try to
4. have a burning desire to make more
*5. our accounts are serperated as well as our age
6. no liquidity, no liquidity
7. edited

I do not have a definite game plan yet, which is why i am posting. Together we can build a pretty good brokerage account in 10 years, but I don't know how to find a good broker with a high ROI.

Thanks -

[crazy connie]

I suggest you do a lot more reading. Action which is taken hastily is often regretted. Try the Millionaire Next Door and many other of our recommended readings. If you read thru the board you may find that not too many folks have much or any respect for the author you have cited. He spouts a lot of hype that can wreck havoc on the inexperienced real estate investor. Proceed with caution.

[mickeyd]

I agree that you need to read more than RDPD, as it is not such a good book IMHO.

Here is a great book list from Diehards.org that will get you going. Any (all) of these will give you a much better education than RDPD.

diehards.org

Investing Books - Most of this information is freely available somewhere on the web (see our sites page), although generally in a less convenient form. I recommend the reading of at least one book from both the General Investing and Investor Behavior sections, the books in the Financial History section should be interesting to all and are vital for those who wish to learn more in the field. Selections in bold are my favorites, other titles are perfectly acceptable if you find them on your library or bookstore shelf. - Alex Frakt

General Investing - Each of these titles covers all the basics - such as asset allocation, investor behavior, tax deferred accounts, sample portfolios - that you need to develop an effective portfolio.


The Four Pillars of Investing - by William Bernstein (aka wbern)
The Only Guide to a Winning Investment Strategy You'll Ever Need - by Larry Swedroe (aka larryswedroe and larry swedroe)
The Bogleheads' Guide to Investing - by Taylor Larimore, Mel Lindauer, Michael Leboeuf All About Asset Allocation - by Richard Ferri (aka rickferri) - I prefer Protecting Your Wealth in Good Times and Bad, limited availability as it's out of print due, no doubt, to its awful title (which Rick assures me was forced on him by the publisher).
The Informed Investor - by Frank Armstrong (aka franka)
Common Sense on Mutual Funds - by John Bogle, founder of Vanguard
The Coffeehouse Investor - by Bill Schultheis. Much too light on content for my tastes, but highly readable and thus an excellent way to introduce the concept of passive investing to those just starting out and perhaps non-investing partners.
Investor Behavior - Investors often act contrary to their own best interests. These books point out common mistakes that have been uncovered by researchers in the field of behavioral economics and suggest methods for avoiding them.


Why Smart People Make Big Money Mistakes - by Gary Belsky and Thomas Gilovich
Rational Investing in Irrational Times - by Larry Swedroe
Financial History


Against the Gods and Capital Ideas - by Peter L. Bernstein
Devil Take the Hindmost: A History of Financial Speculation - by Edward Chancellor
A Random Walk Down Wall Street - by Burton Malkiel

The three that I have bold-ed should be the first that you look at.

[DollahBillYall]

Great thanks for both suggestions. My wife and I had decided on the reading period of about a year and I wish I had such good suggestions before spending my borders card. I want to stress though that my thoughts about the future are not soley generated from RDPD. I feel like the 401K has cut our options off. And any advice on how to interview for a good broker?

Thanks

[crazy connie]

Originally Posted by DollahBillYall

Great thanks for both suggestions. My wife and I had decided on the reading period of about a year and I wish I had such good suggestions before spending my borders card. I want to stress though that my thoughts about the future are not soley generated from RDPD. I feel like the 401K has cut our options off. And any advice on how to interview for a good broker?

Thanks

Borders? Try your public library and save the money. If you read the books and this board you may change your mind on having a broker. I personally got fed up with paying 1% of my nest egg (acquired over many years) on an annual basis for guidance. Understand you will pay for a broker successful or not. It is not how much you make, it is how much you do not spend that enables FIRE...

[brewer12345]

Originally Posted by DollahBillYall

I feel like the 401K has cut our options off. And any advice on how to interview for a good broker?

Thanks

Oy. Please help me, Gawd, not to be nasty in replying to thie poor, miguided soul.

First, you want the 401k invested in low cost index funds in a reasonable asset allocation because if you screw up the rest of your assets somehow (leveraged business fails, etc.) you will still have assets to retire on. So leave the 401k alone.

Second, don't even bother trying to find a "good" broker. They don't exist. Anyone who is actually any good, you cannot afford. Simple as that. So if you want a taxable brokerage account, either start learning about securities analysis and DIY, or do an index portfolio.

Third, yes you can increase returns with leverage, but you can also blow yourself up that much more quickly. Your capital is precious: be careful with it.

[Ed_The_Gypsy]

Listen to Brewer! He knows whereof he speaks!

You two must read more. A book a week would be better. (I have found that at the library, the really good books are either always out or stolen. If you have to do so, BUY THEM! If they are good, you will want to go back and re-read them from time to time anyway.)

[Nords]

On behalf of the moderators, Brewer, thank you.

Originally Posted by DollahBillYall

And any advice on how to interview for a good broker?

Yeah.

If you're talking about a stockbroker then hire Gus Sauter (Vanguard index funds) or Warren Buffett and his team (Berkshire Hathaway). They seem pretty trustworthy and they won't charge a high commission.

If you're talking about a real estate broker, I'd hestitate to get my advice from someone whose compensation rises from maximizing my transactions.

If you're looking for someone to suggest investment ideas and to help you implement them, as well as ruthlessly critiquing any inspirational investment ideas of your own... we're here to help and our services are free!

[Ed_The_Gypsy]

I just found this link on this board:
http://tinyurl.com/socvl
You may find it inspiring. I agree with everything but the recommendation for a fee-only advisor. You can do it all yourself.

[DRiP Guy]

Originally Posted by DollahBillYall

[snips]
upset with the 401k

can't leverage

I may be in a higher income bracket when I retire

I want to retire [early]

have a burning desire to make more

no liquidity [in 401(k)

I do not have a definite game plan yet

Whew.

I'd say while you may be able to get good advice on how to stay out of 401(k)s, do heavily leveraged investing, and move to higher tax brackets without a firm plan, I don't think it is really the forte of most folks here.

I can only speak for myself (and I'm only a rank newbie) but I myself am:

* happy with 401(k) (versus taxable)
* don't worry about leverage (I always think of the crash of '29)
* intend to be in a lower bracket when I retire
* am also considering retiring early (ah we do have a point of commonality)
* do not have a 'burning desire' to make more but would be happy with nominal long term market returns
* don't consider liquidity to be an essential element for the majority of my retirement funds
* do have a general game plan, although it is contingent/flexible, so I can wait for everything to be in place

So while I certainly hope you get the help and advice you are after, I could not help, except as a example of someone doing it quite differently. You are very nearly the anti-DRiP Guy!

Best of luck!

[Texas Proud]

I will just throw out one item that you mentioned....

If you are throwing in money at a lower tax bracket into your 401(k).. then you might want to cut back on your contributions... One of my friends does not make much and was putting in some 15% money (taxed at 15% if she had not put in 401.. or for her 403).. I told her to STOP contributing to that and fund the ROTH or just put in a taxable account that you control...

IMO, if you are only saving 15%, it is not worth putting in a tax advantaged account when you more than likely will pay a higher rate when you retire... this is just me..

[DollahBillYall]

Who the heck wants to retire at 59.5 or later?

[DRiP Guy]

Originally Posted by DollahBillYall

Who the heck wants to retire at 59.5 or later?

Who says that's when you retire, OR when you tap your 401(k)?

Look up 72(t) and/or SEPP. Good stuff. You can start in your 30's if you want.

Even without that provision, if you leave your job at 54 and 9 months, and do not get another job, you can draw from 401(k) penalty free.

[REWahoo]

Originally Posted by DollahBillYall

Who the heck wants to retire at 59.5 or later?

Lots of people age 59.5 or older that are still working...

[Ed_The_Gypsy]

Who the heck wants to retire at 59.5 or later?

AHEM!

[maddythebeagle]

I would add the "unclemick dont read so many books advice"....I take it you didnt start saving until 3 years ago (when you started maxing out your 401k)? Compounding take time....maybe read some of SteveR's posts....as I recall, he started saving latter in life and ended up with a bundle....

[uncledrz]

D Bill

Nothing wrong with leverage, if properly and intelligently used. You're young, and it won't hurt as much if you have weeks, months, even years with sleepless nights.

You can make a fast buck, but more reach for it and end up in flames. If you're going to do it, do it now. It'll be a lesson well earned and will set the base for income/asset/wealth growth that will take you to FI.

Brokers are costly. They will live well on the fees you pay. Another expensive lesson.

If, OTOH, you'd like to skip the above lessons, then spend some time reading the above advice. Brewer's advice is sage and I wouldn't add anything to it. I like Mick'd book list, the only thing I'd add would be The Intelligent Investor by Benjamin Graham.

Good luck to you.

Tio z

[2B]

This forum exists to help people like you avoid doing what they think they need to do to RE.

I agree with the suggestion of reading. You want to manage your own money and you want to minimize taxes and fees.

I would suggest you read Scott Burns' columns on the Couch Potato Portfolio. Here's a link to his web page.

http://assetbuilder.com/

Look up under "Categories" to find Couch Potato Investing. Read. Think. Learn. Don't make the payments on your investment "advisor's" BMW.

There's lots of people that make their living pushing get rich quick(er) schemes. They are all failures unless you bring special knowledge to the table or are just plain lucky. The forum archives have a number of examples of failed approaches from various gurus.

[unclemick]

Hmmmm - from 1966 to 2006 forty years or so, I wasted a lot of time reading books, buying Real Estate, individual stocks, timberland, precious metals, weighting different asset classes(aka slice and dice), using brokers, etc., etc.

Meanwhile back at the ranch - a plain vanilla 401k - 60/40 ish S&P 500 index/fixed DCA'd early and often did 90% of the job in the stretch. As to the other stuff - some did good, some bad, overall so so.

Going into the 14th year of ER(age 63/64) - 85% Vanguard Target Retirement and still 15% individual stocks - it's da hormones.

Heh heh heh heh - my advice set a benchmark/fund it early and often(say an age based Target Retirement 2035 0r 2030) - then sally forth and read books and take a fling at other stuff trying to hit the home run/beat your benchmark. As to authors - Graham, Bogle, Bernstein in that order and then the others. I still have a 10% interest in a non working gold mine(1973) and am winding up my investment(from 1968) in spotted owl timberland turned vacation ranchettes this year. Your mileage may vary.


P.S. - purists will note that neither 401k's or index funds were availible in 1966 - they showed up in the stretch and still done good - heh heh.