BoilerUP

My point about a money market is that its the closest thing to a cash fund that many 401k programs have...and if someone is risk adverse, then contributing just enough into a MM fund to get your employer's 401k match is a conservative and prudent approach.

Never leave free money on the table...

EasternATC

Good advice, Boiler!

DAL 88 Driver

Don't forget about the effects of inflation and taxes on your portfolio... especially over time. A MM fund may seem "risk averse", but it guarantees that your 401k will never amount to much. And that is a risk that very few folks can afford to take. Here's an excerpt from an article about "red flags" to look for when dealing with a financial advisor. I think this addresses your point pretty well...
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"4. Constructing a portfolio for you with an expected annual return of less than 10%.

Many advisors still ascribe to the old way of thinking, that the best way to ensure your money lasts as long as you do is with a typical 60/40 portfolio (60 percent stocks, 40 percent bonds). But this construction may be too conservative, as its rule-of-thumb expected annual return, based on Modern Portfolio Theory, is only 8 percent. That 8 percent may give you a high probability you won’t run out of money, but it almost assures you won’t be able to buy anything with the money you have left. In other words, the 60/40 portfolio doesn’t take inflation and taxes into account.

To pay yourself 4 percent of your portfolio each year in retirement (the generally accepted “safe” withdrawal percentage), keep up with the historical rate of inflation and pay Uncle Sam at a marginal tax rate of 25 percent, you have to earn a 10 percent return. The formula is your withdrawal rate plus inflation divided by one minus your marginal tax rate, or (4 + 3.5)/(1-0.25). If you want to withdraw more or if your tax rate is higher, you’ll have to earn an even higher return.

Given these requirements, I believe you need to set as your goal a double-digit annual return or yield. If your advisor builds a portfolio for you that aims to return less than that, you should look for another advisor."

BoilerUP

I'm not talking about a financial advisor, I'm not talking about returns or management fees or if the OP will have enough saved for his/her retirement.

I'm talking about someone, who doesn't want to participate in a 401k program because they think its "risky", leaving free money on the table in the form of the company 401k match. And the least-"risky" way for them to take advantage of that FREE MONEY.

DAL 88 Driver

I understand you weren't talking about financial advisors. While it didn't fit this discussion perfectly, I just thought the excerpt made a good point about how badly you can lose ground to inflation and taxes if you don't have adequate returns in an account. I agree that it's good to take advantage of the "free money" in a 401k match or company contribution type situation. I just don't agree that it's either conservative or prudent to put it all into the money market as you will end up with nothing but net losses on the investment. And those losses really compound over time.

C212135

Many companies have a vesting time before that "free money" gets in your hands.

jungle

Very good point. A 401k allows us to protect the growth of a small portion of our earnings from tax-maximizing those earnings is the goal and sometimes this means minimizing the loss.


If you invested heavily in the stock market ten or eleven years ago, today you would have made nada, zilch, squat or zero-on average and very few beat those averages on a regular basis. Or far worse.
It would be nice if all you had to do was ask for a double digit rate of return and then just deposit your money, but that isn't the way it works.

Brokers and "advisors" are akin to car dealers in the automotive market and deserve about as much trust. They don't know the product, they can't judge quality and their real business is to sell you what is on the lot right now.

Pull up a chart of the last 12 years of the market indexes-there were really only two or three good buying opportunities. Keep your powder dry for those and always understand all stocks are ripe to sell at the proper time. Staying fully invested worked well in the distant past, but we have been in a far more fluid tactical situation for the last decade.

DAL 88 Driver

I actually agree with just about everything you said. Given that the vast majority of folks invest for "capital appreciation" of stocks or mutual funds, the last 12 years have been a particularly bad time to be an investor. This past decade has truly been a "lost decade" for most investors.

My philosophy on investing and the method I use to invest (Snider Investment Method) is rather unconventional. I focus on creating a cash flow yield from my portfolio. So my perspective is different. I wouldn't even think of putting all my money into the money market when I am consistently getting a 12% annual yield and spending very little time and effort on it.

So... for capital appreciation investors using 20/20 hindsight, you're right... the past 12 years would have probably been better spent in the money market. The problem is trying to time that sort of thing. There is absolutely no way to know with any high degree of confidence when the market is going to go up or down and, especially, when to get in and out. Just watch the financial news shows. The supposedly best and brightest financial minds on the planet can't even come to any consensus on that! (Probably because it cannot be done.) Here's an article that elaborates further on what I am talking about: Market Timing

jungle

Nobody has all the answers and it is impossible to state that a particular method will always yield the best results. Markets are an extremely complex problem involving economics, sociopolitical whims and events that are completely unpredictable. The best choices are always made with the most information available and the "best and brightest" are seldom right for any length of time. The market is always right, though prone to extremes at times. The best are able to change opinion 180 degrees when warranted and go short when previously long or long when previously short. A tough skill to master. Most lack a real sense of objectivity and tend to fall in love with a certain point of view. Often that point of view is not supported by facts.
12% per year is exceptional. Not to brag, but just to point out an alternate view, I have tripled my net worth in the last ten years.

I never watch financial "news" shows, because the "news" is often well behind the time and space and the consensus is often wrong.
The most valuable information is a good sense of general market direction, and right now the direction is down and there is not much evidence to support a contrarian view.

DAL 88 Driver

Absolutely. It's not about which method will yield the best results in any given year. That will change from one year to the next or even one decade to the next. If you're investing for retirement, it's about the performance of your portfolio over your entire time horizon (now through your date of retirement and then all your years afterwards). In other words, it's kind of a tortoise and the hare type thing. Consistency over the long run is one of the real keys and one of the hardest things to achieve. To get back more specifically to what we were discussing... curling up in the fetal position and investing in the money market guarantees that one will consistently lose a lot of ground to inflation.


Congratulations. That's awesome!