Are you currently working for an employer that offers a 401k plan to you and co-workers? Let me start off by saying that 401k plans, at least on paper, can be a fair deal. It allows you to automatically pull money each paycheck and deposit into a tax-deferred account that will hopefully grow for decades to come. Many employers offer matching contribution perks as well, so how you ask could there be anything to complain about? We believe them to be one of the most egregious scams in modern finance alongside annuities. Please look below for some factual points:

• Fees: Stacks of needless charges piled willy-nilly, one on top of the other: Management fees, administrative fees, distribution feeds, trading costs, sales loads and excess capital gains taxes when there is too much portfolio reallocation/churning.
• 401k plans are tax-deferred, not tax-free. Who knows what the tax brackets will be like when our generation retires, but knowing that more than likely Medicare and social security will not be available to us, taxes may be raised significantly, which will as a result hurt the lower and middle class.
• There is a limitation on what an investor can participate in a 401k plan. The mutual fund industry created 401k, so your money flow is entering into hundreds of over-diversified, low-risk funds every year. According to the Motely Fool, only 10 mutual funds in 10,000 beat the S&P 500 consistently over the past 10 years.
• Your broker and financial planners are paid to recommend certain funds. Everything from dinners at Juban’s to LSU football tickets, these people are well compensated to send the 401k flow of money a certain way- even if it’s not in the best interest of the client.
• Brokers are not experts on investing. With the exception of a handful, nearly all brokers make a living not from investing, but from charging fees to their clients and making sales, i.e., acquiring new clients. There is not incentive to create gains for a client’s account, because the broker gets paid either way, not to mention all the hidden fees.

The hard honest truth is that we live in a time where everyone wants to play it safe in life and money. It makes sense with the past bear market and recession of 2008. However, there have always been the ones who separated themselves from the herd. These are the calculated risk-takers, the entrepreneurial spirits. If you are in a 401k plan, trust that you are fully invested in mutual funds, which are known to be falling behind the inflation rate. You can choose the watered-down mediocre path or you can invest in the future. You have two choices, learn to be a very good investor taking advantage of opportunities as they come along, or find a way to passively invest without the risk of huge negative variability.

Informational Resources:

FMT Staff. “Mutual Fund Industry is a Huge Scam” Future Money Trends. 14 January 2015.

Shafer, Dave. “The 401k Scam” Seeking Alpha. Seeking Alpha, 16 September 2014.

Tuchman, Mitch. “ Is Your 401(k) A Total Scam?” Forbes. Forbes, 19 December 2012.