Why I’m Not Maxing Out My 401(K)

I could have maxed out my 401(K) investment this year.  All I had to do was set my contribution rate to 25%, but I chose not to.  The amount is not the drawback for me, as I could easily afford to invest the full amount and have money left over in my bank account.  When you do the math between 25% and 15%, the difference between net worth contribution, assuming a 25% tax rate, is approximately $500 less than I’d have if I decided to invest the full amount.  But I’m not going to do it.

I need to listen to myself

There are too many aspects of a 401K that don’t make sense to me.  (A Roth 401K might better, but my company does not currently offer one)  The key problem liquidity.  I have to wait until I’m 60 before I take any money out of it.  Otherwise, I’ll be penalized and hit with tax penalties, which in this economy, could easily wipe out my investment gains.

I value liquidity as a part of my net worth.  The fact that I can liquidate fully without any type of tax deferred restrictions.  I also value the risk level:  the fact that the nominal value of my cash investment will never decrease is again, great in this economy.

One of my most tangible goals in life is to buy a house.  The more cash and liquid assets I save up for a down payment, the less time I’ll spend in debt to a major bank.  I can also prepay my student tuition if I choose to go to business school.

Additionally, I simply don’t want to have to wait until I’m 60 before I can enjoy the fruits of my investment.  Given my health conditions, I’m not even sure I’ll make it to 60.  Even if I do make it to that age, my health is likely to be in such bad shape that I’ll be unable to fully experience it.

I need to listen to my own advice

I invest way too much in international funds.  I did it simply because it was sexy investment at the time and it now represents too large a percentage of my portfolio.  I don’t have enough debt in my portfolio and I haven’t balanced it since I opened it (investing my current age as the percentage of bonds).

Yes, I tried timing the market.  Yes, I chased high returns using the very unique strategy of picking funds at the top of a list.  (Oh boy, with at strategy like that, I must’ve outsmarted Wall Street by now)  Some days I feel I am my very own Jim Cramer.

But I’m getting better.  By the end of the year, I’ll have a proper asset allocation.  I’ll put my investing on auto-pilot.  The less I do, the less people I listen to, the less emotion I allow into the process, the better off I will be.  I just have to listen to my own advice.

Gambling is supposed to be EXCITING.  Investing is supposed to be BORING.  If I get the itch, I’m better off taking a trip to Vegas than gambling my future on emotion based market timing strategies.

Leave a Comment