Just ask yourself a few basic questions:
Oil is a valuable commodity, right? Does the price of oil endlessly go up? It was at $110 a few years ago then it dropped to $30 and now it’s around $60.
Did your 401k tell you to profit on future oil price declines when it was at $110? No, they were telling you it will keep going higher and you should put more money into energy stocks!
Your house is a valuable asset, right? Does the price of your home endlessly go up? Do you remember 2005-2008? Have you heard of being “upside down in your home”? Yes, that means you owe more on it then what’s it worth! How on earth does that happen? Banks should not borrow you more money on the house then what it’s worth right? Wrong! Just like everyone else banks thought the housing prices will just keep going higher! That’s why you got the loan with 0 downpayment or maybe just 3% down.
So if they can’t even figure that out why should you trust them with your 401k?
Did your 401k tell you to profit from a housing decline? No, they kept saying that your house is your biggest asset and house prices will just keep going up!
If you are a business owner, the older your business gets the more it’s worth, right? Of course not! The value of your business is based on your current and future sales and profits. Which all depend on demand for your products or services. Higher demand translates to higher sales. But that’s not everything.
Have you been in a situation where your sales are going great and you keep expanding? Naturally, you raise your fixed and variable costs, new locations, equipment, new personnel, etc. All of a sudden sales drop! It could happen for many reasons: economic slowdown, natural disasters, high level of competition, Amazon cutting into your profits, personal or health reasons, new technological advances etc.
So what happens if your sales drop, but your expenses stay high. Typically a decline in sales in combination with high overhead costs results in a Bankruptcy. How much is your business worth in a bankruptcy? I hope you can see the point.
The price of your business will go up or down, just like the price of oil, just like the price of your home.
When you buy a stock - you essentially buy a business. (Or a tiny portion of a business represented by the number of shares you own).
Do you agree it would be insane to assume that the price of the business you are buying will endlessly go up?
However, your 401k assumes just that!
What makes it even crazier is to ignore the fact that in the last 100 years there has been more than 20 stock market crashes, depressions, recessions, slowdowns and downturns in the economy.
What does 401k say about that? Well just keep investing! Even if you buy at the peak and then wait patiently for 10 or maybe 20 years the prices will eventually come back up to the same or higher level.
Really!? You want me and my family to suffer for next 10-20 years for prices to come back up?
I don’t have 10-20 years to waist! Why have my 401k never told me I can profit from a stock market crash just as easily as I can from stock market rise?!
Well I know it’s the question most people never ask.
But You are Not “most people!” That is why you are here looking for the answers!
Here is the shocking truth:
Investment banks that run your 401k funds through a variety of mutual funds make a ton of money when markets crash.
Someone has to lose. Unfortunately, it’s millions of hardworking American Citizens.
The entire system is based to benefit the banks. After all, they are in the business to make money. So it makes perfect sense.
Jim Cramer on CNBC describes it the best:
"As much as I like the tax-favored status of 401(k) plans, I need to tell you something heretical, something almost nobody else will come out and say: Most company 401(k) plans stink," he said.
"They have high management fees and administrative costs that eat into your returns, and worst of all, they typically offer you lousy choices for your investments and not nearly enough control over them," Cramer added. "The 401(k) business is a racket for the managers who get to charge you these fees.
If you have the wherewithal Jim Cramer thinks the best way to maximize your investments is with a diversified portfolio of 5 to 10 individual stocks.
And typically a 401(k) plan doesn't allow for that. "They only let you choose from mutual funds, bond funds and perhaps index funds.” Cramer reminded that the whole premise of Mad Money is predicated on his belief that you can do better than many pros by actively managing your portfolio.
"Sometimes it feels like the whole 401(k) system was set up to benefit the financial services industry, not you," Cramer added.
What exactly should I do to avoid being trapped by the faulty system like millions of others?
Are you looking for the solution?