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You forgot the compounding while the money is tax free until withdrawal. That counts for something. After you cash out and pay penalties, taxes etc., you still have to pay tax on the earnings unless it is in some low yield, tax free bond or something.
Also, if timing sucks in the markets, you can cash out, pay penalties, taxes etc., then watch while the remainders plunge in value even more. I do not rely on the presumption that I am a statistically better gambler than the psychopaths who manipulate the markets with split second 24 hour a day computers, political bribery, perfect timing, proximity to the emperor node of fiat fake money printing, knowledge aforethought and insider trading.
The entire premise is wrong, if I weren't lazy I'd explain fully.
I have had to learn that when it comes to their money, people vary greatly in their approach, and do things that are illogical.
You can have investment in both tax-deferred, and taxable accounts.
As a retired investor, my biggest annoyance is taxation; which investment grows and can be spent later tax-free?
You can withdraw an IRA for the purposes of a downpayment on real estate.
I was surprised to find that out a few years ago, but it's not something Big Finance wants the common clay to know about.
As the title says, we start with 401ks and IRAs. You cannot find a single article arguing in favor of cashing them out, but - unless you're a financial moron or a compulsive spender - it's almost always better IMO. Sure you take a penalty hit, but you can make up those 10% with investing in no time, with access to a much wider array of investment options. You also pay taxes, but then the money is yours, out of government reach. This alone is worth a million bucks imo. The flexibility of spending / investing it in years where you are still kicking in high gear is great.
This is not investment advice :)
I don't like listening to people bragging about their successes, because you never know 1. whether they are telling the truth 2. how leveraged they are 3. how liquid they are 4. what their true net worth is.
mell says
As the title says, we start with 401ks and IRAs. You cannot find a single article arguing in favor of cashing them out, but - unless you're a financial moron or a compulsive spender - it's almost always better IMO. Sure you take a penalty hit, but you can make up those 10% with investing in no time, with access to a much wider array of investment options. You also pay taxes, but then the money is yours, out of government reach. This alone is worth a million bucks imo. The flexibility of spending / investing it in years where you are still kicking in high gear is great.
This is not investment advice :)
Please explain this in more detail so other folks not familiar with this strategy understand
Just an example. You have 500k in your IRA, you have all invested, one of your favorite stocks goes onto discount or you have another great investment opportunity. If you had paid 10% penalty say you would have only 450k now but free and clear in a margin account. Your additional leverage (buying power) is anywhere between 150K and 800K depending on the stock price of the stocks you are holding. You can use the money to buy stocks on margin or invest elsewhere. If you have the money in an IRA government forbids any leverage, and moreso money from stocks sold isn't available until "settled", usually 3 business days, which is ridiculous. You have to wait that long to buy something else. Lots of wasted opportunity IMO.
mell says
Just an example. You have 500k in your IRA, you have all invested, one of your favorite stocks goes onto discount or you have another great investment opportunity. If you had paid 10% penalty say you would have only 450k now but free and clear in a margin account. Your additional leverage (buying power) is anywhere between 150K and 800K depending on the stock price of the stocks you are holding. You can use the money to buy stocks on margin or invest elsewhere. If you have the money in an IRA government forbids any leverage, and moreso money from stocks sold isn't available until "settled", usually 3 business days, which is ridiculous. You have to wait that long to buy something else. Lots of wasted opportunity IMO.
On the other hand, as Wookiman once noted, IRA is a protected asset, so it has that advantage
It's always a good idea also to have some of the money in real estate(e.g. your own property) and/or in foreign markets/currencies.
The SIPC is not government backed. It is an insurance company backed by the brokerage firms, themselves. If there was an incident of malfeasance by a major firm, you can kiss the assets in your accounts good-bye. Even under best case situations, such as with Madoff (you see his accounts were also SIPC backed), you may have to wait a decade or two or three to get your assets back.-Basically not worth the paper the guarantees are written on.
Stay close to your money, move it frequently, use it!
The SIPC is not government backed.
For anyone who does the 401k, please explain to me why you trust someone you've never met with your money? That's a deal-breaker right out of the gate. For all tax apologists, have you thought about investments outside of the system, that you don't report..?
This is not investment advice :)