Monday, August 24, 2009

ATTENTION 401k owners! Sick and Tired of Losing MONEY?

Most people are afraid to look at their 401k statement. Thanks to the downturn in the market; the values of their stocks or Mutual funds are hitting rock bottom. Most people have ZERO insurance on their investment assets. If you bought a piece of Real Estate, the bank requires you to have hazard insurance. If you purchase a new car with a bank loan, the bank requires that Physical Damage is included on the Auto insurance policy. So why does the average investor invest in the market without an insurance policy? In other words, how do you protect your mutual funds from loss of principle? The answer is to Dollar Cost Average! Buy more shares while they are cheap of the Mutual Fund or stock because they will eventually go up! This is the advice of Suze Orman and Dave Ramsey. Where do they buy their crystal ball? How do they know it will go up in value? Their advice is to buy cheap term insurance for 20 years and invest the difference into mutual funds, so at retirement age; the need for life insurance is not needed. This advice has plenty of flaws. Life Insurance Companies expose very little of their cash reserves or assets to the market, so why should the average person be 100% self insured with Mutual Funds? Seems fishy? Keep reading...
401k plans are just Defined Contribution plans. People can place money into the plan pre-tax and at retirement, the IRS will tax ALL withdrawals at the investors' Income Tax bracket. This present Congress is planning on reversing the Tax cuts from 2001, the lowest tax cuts in decades. Investors at retirement are in for a rude awakening. It will be just a matter of time before you will hand over a large portion of your 401k earnings right BACK to the IRS. The money invested by YOU can be taken by Congress upon the changes of the Tax law, since 401k plans are REALLY qualified plans under the US Tax code. What control do you have over YOUR hard earned money? The answer: NONE. Keep reading....
Here is another flaw with 401k plans. The investment choices in the 401k plan are provided via the employer. Since most HR managers are NOT Securities Licensed, how does the Average Employee know what Mutual Funds to choose? The answer, they have NO clue! As they choose their investment choices, these choices begin to lose value especially in an economic downturn. The employee just hears from Good old Smart Gurus like Suze Orman and Dave Ramsey to continue to place MORE money in these Mutual Funds since the shares are cheap now, the overall MARKET ALWAYS turns around! I always wonder, why not place these claims in writing? If these "gurus" are so sure of their claims, place these claims in writing!
What is guaranteed to happen is your 401k money will run out at retirement! Thanks to the IRS, and your principle being decreased upon EVERY withdrawal. It does not compound at the same amount each year because the owner keeps taking out money! So Dave Ramsey and Suze Orman please place your Investment Strategy in writing! They claim you will be self insured at 65, but where is the proof? Where is this statement or claim in writing by Suze Orman and Dave Ramsey?
The reason why these claims or statements by Dave and Suze are not in writing because Mutual Fund investing, like most forms of investing provides ZERO guarantees. It is written in the prospectus, "Principle could be lost do to market risk". This leads us to my original point, what does a Mutual Fund investor do in a down market? He(She) can just hope and pray. What kind of investment strategy is this? It is very passive and places all the control in the hands of the Mutual Fund manager and the Federal Government. Oh yes, the Mutual Fund manager is going to make money if you LOSE money or make money. They also by SEC law, can not purchase ANY shares of stock that are NOT part of the Mutual Funds charter. This means they must continue to purchase the same crappy shares regardless of performance of those shares! This is insanity! The risk is passed DIRECTLY to the owner of the Mutual Fund shares..YOU! This is a VERY VERY RISKY investment.
Why do people invest in these risky investments? For starters, the ERISA law that was passed in the 1970, pushed retirement planning back towards the employee. The employee from that point forward was responsible for his/her retirement planing. Next, Mutual fund companies are very successful in marketing their funds, and they make it really simple for the average or poor person to invest. With those pooled assets, they make billions from average investors while the average investor assumes ALL THE RISK! If you factor in the Federal Reserves ability to print money and manipulate interest rates, this is a recipe for disaster;along with these Federal Government stimulus packages. The IRS tax at retirement is the last straw that breaks the "camel's back". Why continue this insanity?
What is a better more efficient option? Its obvious that the combination of 401k plans(and their equivalents) are not the best way to accumulate wealth. Let's wave a magic wand and create a more perfect wealth accumulation vehicle. If we could list out some benefits, here are some:
  • Liquidity-easy Access to money
  • Safety of Principle-Principle is protected against downside market risk
  • Excellent Returns-Vehicle had the ability to provide returns that are similar to the Stock Market
  • Tax Free Growth-The gains from the performance of the principle is protected from Taxes or Taxes are Differed.
  • Tax-Free Retirement-When the money is withdrawn, Income Taxes are eliminated or reduced.
  • Tax Free Wealth Transfer-The Cash could pass through Probate or eliminate Estate Tax on cash accumulation. Tax Free transfer to heirs.
Where can one find a vehicle that can provide these features? Please email me at rbjbizgroup@gmail. com to find out more about the AMAZING wealth accumulation product. We can perform an analysis to see it YOU qualify! Stop donating money to your Mutual Fund manager! Stop providing the IRS a Bond that will come due at retirement! Take control of your hard earned cash NOW! Do it now before its too late!!

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