Even with what actually happened in 2000 and 2007, most of the people seem to be using the typical investment vehicle, like 401K as his or her major investment vehicle (I got absolutely disturbed to discover just how many guru to be individuals right from investment / money blog continue to believe 401K is way to achieve excellent wealth). In my opinion, I am not investing in penny in 401K (I used to and not any more...) just because there is basically no advantages for making use of those as great investment. Worse, these kind of investments really are worst and riskiest investment strategies of all. In this particular blog, I'll give an explanation of my personal thinking of the main reason why investment like 401K is the worst type of investment and ought to never invest any money into it.

Reason 1: Today's economic future

If we have a look around the world, eurozone is without a doubt verge of go into default and other developed countries likewise following the very same path. At this time there is going to be another Lehman moment within this year such as 2008. Stock market freeze that brought on by euro sovereign debt disaster will probably destroy many of people's life saving and investment. This is actually inevitable. Mass-produced financial advisor might tell ordinary persons that you need to diversified the portfolio whereby reducing the risk. But, This is simply not diversification in any way. True diversification is to diversify across all the asset classes including stock, real estate, commodities and business. So what everyone seems to be doing is to purchase every one of the fund aimlessly as though we are betting the many horses in horse racing without thinking about which one is going to win. Regardless if persons adequately diversified his or her 401K portfolio, stock is nonetheless stock and all these mutual funds such as 401K are not able to prevent from these systemic stock market failure due to the fact all the stocks definitely will tumble just like a rock once it takes place.

Reason 2: Paying highest tax (In the case of typical 401K)

I'm not really speaking about mutual fund here however strictly talking about conventional 401K. "Deferring the taxes in order that account will add up sooner due to power of conpound interest!". This is mass-produced financial planners will tell those who are lack of financial education. interestingly, the things they will never explain to those individuals is the fact that individuals putting money in 401K will need to pay highest taxes possible in the end. And, with this state of current economic climate, what do you think tax will go? Tax will undoubtedly go up in the future (Maximum tax in America was 97%. Just for your information). Those who keep putting money in 401K will be really upset just how much the government is going to take their money at the end.

Reason 3: Incredibly illiquid

One other popular sales speeches from financial advisor is "Your employer is going to match your contribution so you may want to invest more". In essense, it's true. interestingly, once we invest in 401K, we can not withdraw your fund until 59 and half years old unless quitting the jobs or serious emergency circumustances. That is undoubtedly major minus. According to the John Williams from Shadowstats.com, existing inflation rate is 12% (Not number from uncle sam, they consistently manipulate the actual number with fake scheme). Traditionally, mutual fund is paying about 8%. In other words, we'll be guaranteed to lose 4% every single year on average. However, are unable to move the money around before the certain era. We cannot even use those money even if excellent investment opportunities come to our way.

Reason 4: Fee and expense

Fees and expense for many of the 401K as well as mutual fund are incredibly expensive. Common expense ratio of these funds will be approximately 1 - 3%. Thus, it looks like small cost. But, it is further from the reality. The more money and longer we hold, the more it'll cost us. Expense can increase as much as 70% of whole account value if we carry like 40 to 45 years. Numerous regular financial planners a further marketing techniques is "Use your compound interest to your advantage". However the things they never let you know is that there will be compound expense. The more funds you carry and more time you have, the more money is going to be used as an expense.

My largest fear with this isn't expense alone but opportunity cost involving investing in 401K. Imagine we aren't putting the money into 401K instead putting the money into other investment options that generate higher rate of returns, simply how much we all lose as a result of putting the money into 401K or other typical investment? This is often very massive depending on ability of investors.

Reason 5: Hardly any control

With 401K, there is virtually no control over the fund itself. Only thing we could do is to move from one fund to the next. In deals such as real estate, we could physically talk to the property manager or any other vendors to improve or change the situation quite quickly but it's not possible for individuals to say to fund manager how to proceed. Even worse, let's say fund manager themself does not have much understanding of this current economy? In my view, most of the people invest in investment vehicles that absolutely no control or very little control over. Have you actually believed the reason banking institutions bring bucks to put money into real-estate and never lend money to get mutual fund or 401K? That is due to hardly any control over. This is way too high-risk for the banking institutions to lend the money for the project that is virtually no power over.

Reason 6: No protection whatsoever

Investments such as business and real estates can be covered by insurance which actually covers the loss whenever something goes bad. But, there is absolutely no insurance of 401K. If we all call a insurance office to inform agent whether there is insurance policy for 401K or mutual fund, they are going to laugh at us and of course tell us "Absolutely no". If we lose the whole thing in 401K or mutual fund, we'll lose all things we ever have and mutual fund or 401K businesses are going to get all the money. To me, this is very dangerous.

All of these Six reasons verify me that investing 401K is the riskiest thing persons can possibly do. It is absolute madness to actually invest in financial product that

1. Pay maximum tax - even lose only benefit of the stock investment: capital gain

2. Very illiquid - simply cannot take out money until 59 and half years old

3. Very high expense (accumulated expense)

4. Absolutely no control over

5. Virtually no protection

6. 100% exposure to the systemic risk

Nevertheless, so many people are thinking it is the road to wealth. I really feel simply unfortunate to witness people inadequate financial education. In this coming time, I'm worried that millions of people will suffer their life saving due to what's imminent. I do hope more and more people will receive financial education. so that they can invest his or her funds far more intelligently than only speculating their money to riskiest investment of all. In final thoughts, Let me conclude with Warren Buffett's quote "Wide diversification is only required when investors DO NOT UNDERSTAND what they are doing".

Author's Bio: 

Takeshi "Ken" Yashima is an investor as well as a wealth strategist. His financial education website shares his insight about the current global economic situation as well as the current investment strategies to investors and his subscribers. Download a free E-book and special report at http://www.takeshiyashima.com