Hi, my name is Bob Brooks, you know, I find it interesting that the one account that we save the most money into we invest for our retirement and holds the bat, the vast majority of our retirement assets is the same account that we get no help with, that we find confusing, and we just don't know what to do with it. And that is the 401k plan. Now, I wanted to do a teaching video on the 401k plan, because I want to make sure that you are effectively using that 401k plan and not just by default using it. What I mean by that is we're just taught at a young age that once you start working, you set up a 401k and you invest in save into it. And that's what we kind of do almost like robots, we go out, we set up a 401k and we don't effectively use it.

I gotta tell you, there are some 401k plans that are not even worth investing into, and not even worth wasting your time with. In fact, I've had experiences with clients where I've told them, Hey, I wouldn't waste my time in this 401k plan. I would do it outside. You Do it in IRAs and other types of accounts to make sure you're getting the most effective use of your money. Now, before I get started, I want to make sure that everybody's very clear on something. And that's my disclaimer.

Anytime that I talk about investments in these teaching courses, they are not intended to be advice. What my intent is, is to show you different ways that you can manage your 401k plan and actually implement a strategy. That's all my intent is not. So I'm going to give you a lot of different ideas. And we're going to compare and contrast and contrast that with what you're really being told. And then you can take like we always do, you can take that information, and you can determine on your own what makes sense for you some of these ideas, you're gonna go, what really makes sense, some of these ideas you may not agree with.

And so that's fine as well, but find what works for you and have and be able to put a good strategy together. Now let's talk about the obvious pros of a 401k plan. Number one is to match. I gotta tell you if an employer is gonna give me free money I'm going to take it and that's what a match is, you know, they're going to give you for every dollar you that you invest, they might match that with another dollar, don't turn away free money, at the very minimum, if they're if they're going to only match up to a certain percent of your contributions, then go up to that percent. But don't turn that away, because that is the crown jewel of the 401k plan, in my opinion, the main benefit of the 401k plan. The next is a tax break, obviously, you're putting pre tax dollars back into the 401k plans, getting some tax savings, that amounts to something as well.

So those are your two pros. Now, unfortunately. And as I talk about this, I want you to think about your own 401k plan, the list of cons a little bit longer. And that that's that's what the challenge here is with the 401k number one lack of choice. In lack of diversification, I'm going to put those two together because in most 401k plans, I've seen a 401k plan with as little as four investments into it, and then then LLC a 401k plan that has a lot of investments. But here's the here's the difference.

You might you might be thinking that diversification comes down to the ability to spread money over a bunch of a lot of different funds. And I had someone come to my office one time, they said, Look, I'm very well diversified. I have 10 different funds. I looked at him and I said, No, you don't, you're not diversified at all, because you're 100% in stock funds. So diversification, the important thing to know about it, it's not just about number of funds. It's about the type of funds.

And this is one of my challenges with a 401k plan is that you really typically only have two types, bonds and stocks. In to me, in my opinion, that is not enough. You need the ability to get alternative investments. And I'm gonna do a whole teaching course on this as well, so that you understand how this can be a great plan B strategy, when you're with your 401k plan, and that they don't have the different types of investments that you can truly get At the diversification, so you're kind of stuck in a bought stock and bond world. Now having said that stocks and bonds are supposed to move in opposite directions. But you've got to know that that is if you look back in history, there have there have been a handful of times where they both gone down in value at the same time.

This happened just recently in 2008. So that diversification, you need a little bit more of a we're going to I'm going to show you ways around that. But that is to me a downside to it. No help. How many times have you gone into a new company, say a new company, and they give you a packet and they say we need you to enroll in this 401k plan. I need you to do it by tomorrow, or you have two weeks to figure it out.

I know this to be a fact because I get a lot of requests to take a look at 401k plans for clients and put allocations together for them because they don't know what to do. So this problem this is a problem I think on a on a corporate level, that companies are not helping their employees with the biggest asset that they're going to have, which is the 401k plan. And then lack of strategy. Like I said, you're a little bit limited fortunately, we're going to talk about strategies but you're a little limited as to what you can do strategy wise. And keep this in mind this is also a theme throughout investing courses that you'll hear is that there's two parts to the overall formula of growing money and that is there's investing there's putting the money in the account and then there's strategy we're going to talk a lot about that now formula for long term success with investing that was a good a good preview into this is that I look at a plan a and a plan B approach.

Now for most people, they're taught Plan A you invest you keep that money invested for the long term, and that's what you do so that's Plan A but here's the problem is that we don't live in a plan a world. Plan A doesn't always work. It doesn't work always in life. I mean, you're going along doing things and in life hits you with change and you have to go to plan B Same thing, there's no difference in investing. And then when you get into a plan B environment, that means the risk level has increased. So you want to have some kind of strategy, some kind of an idea, this is what I'm going to do if that risk level starts to increase.

So to, to me long term, and we'll talk a little bit more about this later on this teaching course, to be successful. You've got to have a plan a and a plan B strategy to get ultimately to get success. Now, simple strategies for 401k plan, investing, accelerate and break. There is a risk and reward ratio that goes along with investing. It's, you know, and it's funny to me, because it's rarely talked about. But it's important to understand, there's going to be times where you can look at the the stock market and say, you know what the risk level is low, but the potential for reward is really high.

So it's a good time to be investing in the market, because you're not taking as much risk or there's always risk with stocks, but you're not The risk level is not as high. And the reward is the reward is big potential for taking that risk, then there's times where the risk level is really high, and the potential for reward is low. So it's very simple. You look at that ratio, if it's in your favor, you take risk. If it's not in your favor, you back off of risk. It's a very simple concept.

And this is what I call accelerate and brake, you take risk. And think of it as putting, putting your foot on the pedal and giving the car gas, you're taking a risk you're growing, you're going forward, but there's times where you want to take your foot off the pedal and put it on the brake and you want to pause and you want to you want to take less risk. So you have to determine with your portfolio, it what times you want to accelerate and what times you want to break. Okay, very, very simple, very simple concept. Now, how do you do that? Well, you look at it from the standpoint of how much money you have in stocks, and how much you have in bonds.

Now, this is a perfect way to Do it. But it is a way. Like I said, I want to give you strategy. So you can figure out a way to manage your risk Plan B. So let's say that you look at the market and you ask yourself a very important question, you say, Well, how much of the risk of the market do I want to take? Do I want to take 100% of market risk, stock market risk?

Or do I want to just take 50 maybe I'm kind of undecided. So I just want to take 50. So you take 50%, put it in stocks and 50% and put it in bonds. Now, having said that, once again, the disclaimer is they both can go in the same direction, they both can lose money at any given time, but this is a way to put yourself in the best position to manage risk. Now, let's say we're going to accelerate and break here real quick. Let's say that we're seeing the risk level in the market and and it's getting riskier and riskier.

And so we want to break a little bit more, so you shift some of that money from stocks and increase the amount in bonds. And let's say that you just want to take 20 you're comfortable all Only with about 20% risk of the market. So you go to a 2080 mix. And so it's constantly managing that ratio. And think of it from the standpoint of putting your foot on the pedal, putting your foot on the brake. But this is a good way that you can manage your risk.

Now the strategy know your beta. Now, as I get as I'm getting into investment world of words, don't worry, we're not going to go off on a technical tangent here and talk about things that you're going to go. I think I'd rather go watch something else. So don't worry, I'm not going to do that to you. A beta is very simple. It's a great concept of managing risk that most people don't know about.

But this will help you in establishing a strategy to manage the risk of your mutual funds. Here goes a beta simply means if you have a beta of one, that means you're taking 100% of the same risk the stock market's taking, okay, beta one, if that fun has a beta of 1.2 1.3 1.4 Higher than one, that means you're taking more risk than the stock market. And you can look this up on morningstar.com. And you can see the beta for each fun. Now, let's say that you don't want to take as much risk of the the stock market and you want to take say, a point five, well, that means that you're taking half the risk of the stock market. So you can manage not only not only at the accelerator break level, you can also manage at the individual fund level.

Now I've done a study on on on the beta of funds. And what I found if they're true if the beta is truly correct, that take the financial crisis, for instance, that those funds, they did lose money, but they didn't lose nearly as much money as the stock market. And they rebounded and got those losses back a whole lot quicker. So this can work to your advantage, managing the beta and understanding the risk of these these stock funds are taking. Take your chips off of the table and what I mean by that is simply Hey, it's been a good run, don't like I don't want to accelerate and break. I don't care about the beta.

I just want to go the safety of cash. Now, the mutual fund industry, financial services industry, they're going to villainize you for doing that, they're going to tell you, that's the dumbest move that you'll ever make. Because they're going to accuse you of trying to time the market. Now, market timing is simply trying to time tops of the market. So you're trying to get your money out at the very top or buying at the very, at the very bottom of the market trying to do that. It's very difficult.

This is about risk management. This is not about market timing. It can make sense to go and I'm not suggesting you go do this, but it can make sense to say I'm just going to take a break for a while I'm going to take my profits, I'm going to go over to safety and have money market. as safe as money markets are and just be in place we're probably not going to lose money. Now there's one disclaimer to this. The biggest issue mistake that I find that people make is that they decide, okay, I'm going to do this move.

And they have no game plan for getting back in. And what ends up happening is something psychological that occurs is that people stay in cash. They are too, they don't have any definite plans to get back in and they stay in that money market for years, and then they end up missing out on growth of their money. So it's important to have a strategy and know ahead of time, well, this is what I'm going to do. I'm going to move back in to investments this way, maybe a little bit at a time after I wait four months, kind of see what happens. But you want to have set calendar dates, this is what I'm going to evaluate.

I'm not just going to forget about this and leave it in cash. I can give you example after example of people who've done this and they're still in cash and they have not had any kind of a game plan to move back in. So know when you're what you're you're going to get back now have a batter's mentality. Here's you know, it's interesting that a professional baseball player can be successful being wrong 70% of the time. Now if you have a 300 batting average, you're that's pretty good. But that means that 70% of the time, they either struck out, they hit a ball, they got caught, or they got thrown on a base in the so using this batters mentality with investments, you have to know that probably the majority of the time, you're probably not going to get the right calls.

When you move money around and you adjust money, you break, accelerate, or whatever you're going to do. It's not always going to go your way. So you have to know that and you got to be okay with that for some people, that being wrong shuts them down, and they wait. And they gather as much information and they analyze, and they sit in cash, and they don't take any action at all because they're trying to look for perfect entries back into the market. You just got to accept the fact you're going to be right and wrong sometimes. But when you're wrong, just don't want to stay wrong.

Have a strategy for getting it right again, but know that ahead of time So that you don't let that stall you out. Now, we talk a lot about pop culture finance. And this is financial education and information developed as a belief rent for the masses. Now what all that means if you haven't watched some other videos, this is this is brand new to you. This is information that the financial services industry delivers that the mutual fund industry delivers. And they're saying, This is what we want you to believe.

We want you to believe these certain principles, and we want you to believe it in the masses. And I talked about on another video about belief renting. This is where someone says, Hey, believe this way, this is the way this works. And you go Hi, that sounds right. I guess I'll believe the same way. The problem with belief renting is if someone came up to you and said, Why do you believe that way?

They go well, because they said that it sounded good. And that sounds like the way to go. Well, what's important is that you own those beliefs. Now, owning a belief simply means that if I say something, you're going to take that and you're going to seek to understand it, and you're going to So, keep testing and see if you really believe the same way that I believe. And you can explain why you believe that way. And it may be that you go through a course and you go, you know what I buy into 80% of that, but I think Bob's wrong on 20% of it.

And so you adapt it and make it your own, you own it. They don't want you to own and they don't want you to think and they just want you to do what they tell you to do, because that's the big profits, the mutual fund industry. And so pop culture finance drives most people's belief systems in their 401k plan. So let's take a look at it. Just buy and hold. What they tell you start your 401k plan, start investing into it, don't move the money around, just leave it invested.

If the market goes up, the market goes down Don't worry about it because you can you can be a buy and hold investor because over the long term, the market always goes up. Now, that's there's some truth to that. Obviously the market has gone up over the long term. The problem about with being a long term investor being a just a buying holder Is that if you've done that all your life, guess what you're going to do in retirement, you're going to do what has always worked, you're going to develop belief systems around a buy and hold strategy. And you're going to continue to do that. Now, the market goes through times where they can lose a lot of money, you know, between 2007 in 2009, the market lost over 50%.

So what if you got to 2007 decides you're going to retire? Pretty bad time to be buying and holding, but that's all you know. And you think, well, the markets gonna come back up. I know people that back in 2000, when the technology bubble burst, that there was people who retired with great sums of money, they lost like 45 50% of their money, because they bought and held throughout the entire downturn. They had to go back to work. So it's developing that mentality of that and I would just call the buy and hold Plan A.

Remember we don't live in a plan a world we live in a plan a and a plan B world. Just look the other way. JOHN Bogle is the founder of Vanguard investment mutual fund company, very old mutual fund company very successful. And I've got crazy amounts respect for john Bogle don't agree with everything he says. But I have and I've had I've actually had the opportunity to interview him a couple times in the program. guy's a legend of Wall Street.

He will he was on CNBC because he's a big buy and hold guy. And he's a big index fund guy. And so he would be on on CNBC during the bear market financial crisis. And he would actually say and tell viewers, just don't look at the statements look the other way. You're in it for the long term. I just don't agree with that.

I think that you want to know the risk you're taking you want to know, if you're losing money, you want to know if you need to be taking action, but the mutual fund industry wants you to move look the other way and it makes sense. Think about it for a second. If you decide to make a change they may lose out on fee money. So this the a lot of these are designed once again don't think but you know it was we talked about it's a it's a theme across all these courses it's about decision making. It's about thinking it's about intentional learning and getting an education so you can make decisions and in guard yourself against pop culture finance, then there's target date funds. I'm going to park here for a second talk about this because this has been this is a big pop culture finance thing now, in every just about I will say every just about every 401k plan has these targeted fit funds and mmm basically their target date fund, also called a lifestyle fund.

There's different names for it, but the concept is simply this is that if I'm going to retire in 2030, let's say then I'm going to put my money in the 2030 fund. Now I don't have to touch it because the fund managers or as I age are going to decrease the risk This sells really well, it's very easy to understand. And investors gravitate towards it because it's kind of a, put that money away, don't think about it approach. And if things are going bad in the market, they know that they're at the risk level, supposedly that they should be for their age. Now, I'll say this about target funds is that's a strategy. And it's a strategy that is better than not having a strategy at all.

It's just like, a do it yourself will is better than having no will at all. Preferably you have an attorney do the will. To do it yourself will it's better than nothing at all. And this is better than nothing at all. But there are some flaws with this concept. And this is why I don't like target date funds.

They base everything only on your age. And from a from a standpoint of risk. It makes it there's so many other things that you have to evaluate besides just your age, so it goes way beyond Risk goes way beyond just your age. The second is they, they have the autopilot approach, just put your money in there, don't worry about it. I've never been an advocate of that, I think you've got to be in tune with what your money is doing. And most people that I find, have no idea what's going on with their retirement assets.

And I remember a fidelity commercial one time, and the interviewer was talking to a couple. And they were they were talking about the target date funds, and they said, you know, what have you accumulated in your account and, and the guy just has this, this look, this absent look on his face, he goes, I have no idea. He said, I just know they adjusted by the age and I don't worry about it. I just don't think that that's the appropriate a message to be sending when it comes to investments. But once again, this is a big, big category, and big selling point for the mutual fund industry. Not all are true to their mandates.

And what I mean by that is that I will just give you a good example during the financial crisis in 2008. There were funds that target date funds and people who were already in retirement. So you gotta assume if you're already in retirement, that you are not taking that much risk, a fair assumption, right? So there were target date funds and people in retirement that lost eight to 10%. To me, that is completely unacceptable in there, it should not have happened. So to me, they're not true, always true to their mandate.

And I actually saw an article that was ranking the top five, I think it was moderate funds. And I saw a target date fund in there. And I thought to myself, the only way that target date could be in there because target date funds are supposed to be vanilla investing. I mean, we're not talking big investment strategies here taking a lot of risk in most in a moderate type anyway, and I thought to myself, they must be taking a lot more risk than advertised if they're actually in the top five. They force younger workers into higher risk. This is pop culture, finance belief here, that if You are young, if you're in your 20s, you can take all the risk you want to because you've got time on your side.

Now, once again, going back to we talked about why would you want to take a lot of risk when the possibility of rewards not there. And this just goes to show that the mutual fund industry does not understand does not understand the millennial generation. survey after survey shows the millennial generation to be very conservatively based and very risk averse, yet, target date funds are going to take a maximum amounts of risk at a younger age. And, you know, that's just one of those things where someone may be getting into a target date fund, and it may be a mismatch for the risk level. Now, having said all of that, we're talking about moving money around in a 401k plan. And I'll tell you, if 401k providers, mutual fund companies, they don't like it, they don't want you to move.

So what they've done is they've implemented penalties and required holding times. So my disclaimer Any of these strategies is simply that you check the guidelines of any funds before you move anything. Because you want to know if you're about to move something, you could get penalized either by by a percent or so. Or they're going to restrict you from moving. So you want to know, know upfront what the rules of the 401k plan are before you implement anything. You know, I think this is extremely important that we think differently than we own our own beliefs that we don't just buy into what people tell us to believe this, we're talking about 401k investing, we're talking about taking hard earned money in socking it away and investing it and adding a strategy to it.

So it's important that you develop some kind of strategy on some kind of level. So you can have a plan a and a plan B because remember, it will stress this throughout a lot of teaching courses. Here is that this is not just a plan a world it's a plan a and a plan B world