The 7 Most Common 401(k) Mistakes [and how to fix them]

Investing in a 401(k) account can be scary. There’s a lot to learn and countless decisions that have to be made just to get started. Here are some of the most common mistakes I’ve seen people make with this common retirement account.
Adam

Written by Adam on July 22, 2019.
19 min read. Investing. 8 comments.

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Having access to a 401(k) can be one of the most impactful ways to save money. Aside from Social Security, 401(k) accounts are the number one way that Americans plan for retirement. A full 32% of US citizens use one, even though 79% of people have access to one! (according to the U.S. Census Bureau). In other words, the vast majority of people probably have access to a 401k. What can this 79% of people do to get the most from their retirement account?

bicycle blur
Riding a bike

A few weeks ago I put out an open offer to chat with people about their finances for free (an offer that’s still open! Just drop me a message and we can set something up). These chats had no set agenda – just a chance to touch base, chat about money and get feedback on whatever was on the top of peoples minds. A few things stood out from these chats. The most common tweaks were surprisingly simple fixes that could help maximize how a 401(k)s helps grow wealth.

I’ve had a complicated relationship with 401(k)s over the years. For about 4 years I worked at a startup that didn’t offer one, effectively halting about $80,000 of potential investments 😭. Prior to that (and after) I maxed it out. Whenever we had a meeting with the plan administrator, I was usually the one asking crazy questions like “Does our plan allow in-service withdrawals?” or “Does it allow after-tax 401k contributions?“.

While there are some extremely specific things like that which only impact a small number of 401k’s, the topics in this post are general improvements that anyone and everyone can take advantage of. Here are 6 of the most common mistakes I’ve seen.

1. Not Investing In Your 401(k)

This one may seem obvious, but 60% of people who have access to a 401k don’t invest in it! That’s the biggest place to start. Even at high-paying jobs I’ve had, when I talked to some of the smartest people they were reluctant to put their money into the stock market. They saw it as a place where they might see their hard-earned cash go down in value.

If you’re not investing because the stock market itself isn’t a sure thing, that’s a very logical complaint! What is a sure thing though is that if you put your money into a savings account, then it’s actually losing about 2% a year due to inflation. So which do you want to do? Have a guaranteed loss of 2% a year, or a potential loss by investing in the stock market?

Historically, the US Stock market has risen an inflation-adjusted amount of about +7% a year over since about 1900. Since this is inflation-adjusted, it means if inflation was +2%, then the actual value went up 9%! Compared to -2% if you put your money in cash, that’s a 9% swing in the value of your money.

That +7% average includes The Great Depression (1929-1932), World War II (1937-1945), The Savings and Loan Crisis (1986-1985), The DotCom Bust (2000-2002), The Great Recession (2007-2009) and many other down years. Even with all those, the market went up overall!

In other words: if you’re scared to invest in the market because it goes down then you’re guaranteeing that your money will lose value due to inflation.

Another reason people don’t invest in a 401k is that they just don’t have the extra cash to do it. This is a perfectly valid reason, there’s no shame in that. I recommend not even investing in a 401k unless you can cover your expenses without going further into debt AND waiting until you have a 3-6 month emergency fund. I love this chart which shows where a 401k could fall for you.

Order of Accounts

Once you have your basic living expenses covered and have a buffer for emergencies, then a 401k makes sense!

When Code School was acquired, suddenly I switched from working at a startup without too many perks to working at a larger company with a 401k. It was great! Since the transition happened on December 1st of the year, I deferred a full 100% of my paychecks in December towards my 401k to make up for the missed months. I still didn’t max it out, but that’s how important it was that I was able to put money into it.

2. Not Investing Up to Your Company Match

Imagine you’re in Las Vegas. You walk up to a table game you’ve never seen and learn the rules. This game is a little weird. Whatever you bet, you win back plus an additional 50%! So if you put $100 in this game, you’ll win $150 every time. How much would you put down on this game?

Your answer should be every cent you have. There are few guarantees in investing, but this is one of them. If you can put in $100 and get a guaranteed $150 back, you should take that deal all-day, every-day.

Most companies offer some kind of “401k match” which is similar to this. It’s usually phrased in an awkward way:

We’ll match 50% of your investments up to 6% of your salary.

Common 401k Match Practice

Let’s unpack what this means.

“6% of your salary” is straightforward. This is your pre-tax salary, and most likely also includes any bonuses you have. If your total salary is $100,000, then 6% means you’d put $6,000 into your 401k. Since the 401k limit (as of 2019) is $19,000, putting $6,000 into your account is well within the limit.

“Match 50% of your investments” means that your company will put in an additional $3,000 in this case. This $3,000 doesn’t count towards that $19,000 limit either! There’s a separate limit for your contribution + your employer’s contribution, but it’s $56,000 a year. Chances are you’ll never hit this unless you are self-employed and get to decide how much your employer contribution is.

What’s nice is that since 401ks are contributed with pre-tax money, if you were to put $6,000 into one ($500/month), your paycheck would only go down about $400 after tax each month – or go down about $200 if you’re paid biweekly.

The takeaway here is that investing up to the company match is the best investment you can make. It’s an investment where you’re guaranteed to make money since it’s not dependent on the market. If your company provides a company match, I’d highly encourage you to contribute up to it.

3. Basing Investments on Past Performance

When I first started investing I had no idea what I was doing. I went into my 401k portal and sorted the investments by their 1-year return. I put my money right into what was at the top – at the time in the mid-’00s that was an international fund.

If you had to base your investment decision only on the data in this table, without prior knowledge of the funds, then the 10-year return is the best option – albeit an awful one.

When you don’t know how to evaluate the funds within your 401k, you’ll go by what you know, and past-performance is an obvious one.

This isn’t the worst way to choose what you invest in, but it’s up there. The problem with choosing the best performing fund in the past is obvious: past performance is no guarantee of future performance.

Take a look at this chart. It represents the market sector returns for each year. One thing that stands out is how often categories spike from the top to the bottom!

novel investor diversification
Diversification chart from The Novel Investor

In 2006 you might have noticed real estate going crazy and put all your money in that, only to lose big in 2007. If you switched to emerging markets next, you would have seen that lose big the following year.

Rather than trying to pick the winners, take a look at that “AA” allocation in the image above. That’s a diversified portfolio that includes US stocks, International stocks, and bonds. You’ll notice it’s never the biggest winner in any given year, but it’s also never the biggest loser. Diversification is an extremely powerful way to invest that I personally follow.

Knowing how to diversify an account gives you the knowledge to confidently invest on your own and not base decisions only on past performance. If you’re new to diversification and choosing funds, check out part 2 of The Minimal Investor Course: Diversification which digs deep into this topic.

The absolute easiest way to diversify your account is to look for a “target-date retirement fund”. These usually have odd names like “AF TRGT DATE 2040 R4 ($RDGTX)”, where 2040 represents the year you plan to retire. This fund will be diversified and change over time. They are usually an incredibly easy way to invest since you can put all of your money into one fund that will behave similarly to the “AA” allocation on the above chart.

4. Not Looking for Low-Fee Funds

Fees are one of the most insidious parts of investing. I’ve written a bunch about how fees work. Avoiding them is an easy way to set yourself up for success.

In every 401k account that I’ve ever looked at, the funds with the lowest fees were the best funds offered. This actually makes complete sense. These funds have the lowest fees because they are usually “passive index funds” where the stocks selected in them are chosen by an algorithm. This differs from “active funds”, where actual humans make the decisions. Active funds have MUCH higher fees, more variability, and are less likely to match the returns of passive funds.

Warren Buffet even made a bet that index funds would beat actively managed funds over a 10-year period:

Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.

Warren Buffet’s Long Bet

Now that this period has ended, who won? Warren Buffet did! Investing in just the S&P 500 for 10 years outperformed the best work a hedge fund could manage. Indexes outperform people in the long-run. While people might have a great year or two years; having 10 great years is absolutely unheard of. Even Warren Buffet knows that.

Look for the funds with the lowest fees and that’ll be a great place to start. Those will be the passive index funds that will likely be some of the best options in your 401k.

After looking at fees, you’ll still want to look at what the actual fund is investing in, and matching that up to your target asset allocation.

5. Investing in Everything

You’ve logged into your 401k and you’re looking at a list of what to invest in. Maybe you’re not sure, so you decide to invest a little bit in a bunch of investments. That’ll diversify your investments, right? Wrong.

Chances are that your 401k has a bunch of funds that all invest in the same thing. In my case, there are a dozen funds that all invest in the US Stock market. If I put money into each of these that wouldn’t be significantly different than just putting all my money in one of them.

That’s because these are all Index funds that track the same “index”. Index funds usually invest in hundreds or thousands of companies in their category. An S&P 500 index fund by Fidelity will invest in the same 500 companies as an S&P index fund by Vanguard. They’ll have almost identical performance as well.

The takeaway here is that to invest in a ton of things you don’t need to select a bunch of funds in your 401k! Instead, find the best fund you need. You can get a fully diversified portfolio in a few different ways:

  • 1 Fund – Find a Target-date retirement fund
  • 2 Funds – Find a Global Market fund (US & International) + a bond fund
  • 3 Funds – Find a US Market fund + an International fund + a bond fund

With either 1, 2 or 3 funds you can be successfully invested in companies and governments all around the world! The 3rd approach is similar to how I would (and do) invest $1 million.

6. Trying to Diversify Within Every Account

Diversification is great, but getting there is sometimes complicated.

Let’s say you have $100,000 invested with $50,000 in a 401(k) and $50,000 in a brokerage account. You’ve decided to keep things simple and want to invest 50% in US Stocks ($VTSAX), 30% in International Funds ($VTIAX) and 20% in Bonds ($VBTLX).

How would you allocate this between your 401k and brokerage (taxable) account for this? I go over this exact scenario in The Minimal Investor Part 4: Tax Efficient Fund Placement which digs into how to optimize your investments. Check out the course if you want to read more on this.

To solve this, there are two main ways that people do this. The first is to diversify each account as 50%/30%/20%. That ends up looking something like this:

$100,000 Invested
Evenly / Bad
401(k) Brokerage
US Stocks (50%) $25,000 $25,000
Intl Stocks (30%) $15,000 $15,000
Bonds (20%) $10,000 $10,000
Total $50,000 $50,000

In this case, both the 401k and the brokerage account are well diversified and meeting the asset allocation that we laid out.

The problem is that this isn’t a tax-efficient use of the different accounts! A 401k and a brokerage account have very different taxes, so it makes sense to consider how your investments will behave within them.

This is a much larger topic that’s discussed in my free investing course, but the tl;dr is this: certain funds are more tax-efficient and some are more tax-inefficient. Bonds, for example, are the most tax-inefficient of these three. Each year the bond fund will distribute dividends. The dividends in the brokerage account will be taxed each year, while the dividends in the 401k fund won’t be. If you want to minimize taxes, you’d want to hold your bonds in your 401k account.

Likewise, if we take a look at yields our US Fund ($VTSAX) vs Intl Fund ($VTIAX), we can see that the Intl fund has a higher yield. That means it’ll be less tax-efficient as well.

Armed with this info, we now can sort these from most to least tax-efficient:

  1. US Stocks ($VTSAX) [most tax efficient]
  2. Intl Stocks ($VTIAX)
  3. Bonds (VBTLX) [least tax efficient]

Now we can rebalance our portfolio and switch to a more tax-efficient setup.

$100,000 Invested
Tax-Efficient / Good
401(k) Brokerage
US Stocks (50%) $0 $50,000
Intl Stocks (30%) $30,000 $0
Bonds (20%) $20,000 $0
Total $50,000 $50,000

To optimize this, we’ve put the most tax-efficient investments in the Brokerage account and the least tax-efficient investments in the 401k.

In this case, the math lined up exactly but that won’t usually be the case. If we had instead wanted to invest 45% US, 30% Intl, 25% bonds how would we do that? We’d need to hold International funds in multiple accounts:

$100,000 Invested
Tax-Efficient / Good
401(k) Brokerage
US Stocks (45%) $0 $45,000
Intl Stocks (30%) $25,000 $5,000
Bonds (25%) $25,000 $0
Total $50,000 $50,000

The big difference here is that we needed to spread out international funds over both the brokerage and the 401k account. In both cases though, we’re putting the most tax-inefficient investments in our 401k.

In my experience, there’s usually at least one fund that you’ll need to hold in multiple accounts to hit your target asset allocation. This is especially true if you have a spouse where you’re trying to diversify across even more accounts.

7) Investing in a Roth 401(k) rather than a Traditional 401(k)

This one may be a little controversial. Roth 401(k)s are a type of retirement account offered by many companies. They allow you to contribute after-tax dollars that grow tax-free and allow you to take money out when you’re 59.5 years old tax-free. Basically, they’re like a Roth IRA.

Roth IRA’s are great – so shouldn’t Roth 401(k)’s be great too?

This is one of the hardest ones to answer for everyone. The answer always comes down to the same thing though:

If you’ll be in a higher tax bracket now, invest in a traditional 401(k). If you’ll be in a higher tax bracket later, invest in a Roth 401(k).

The idea is that if you’re taxed more now, you can defer those taxes by investing in a 401k. If you expect to be in a higher tax bracket later, then using a Roth 401(k) can help you reduce taxes later by paying them now.

It’s incredibly difficult to know what tax bracket you’ll be in later. Later could mean decades from now! In that time maybe you’ll move somewhere else, tax laws will change and or you’ll realize you really just want to live in an airstream to cut expenses. Who knows?

If you don’t know, I’d recommend investing in your 401(k). Here’s why: you can always roll that money into a Traditional IRA, then convert that to a Roth IRA. You’ll need to pay taxes on that conversion, but that’s the same amount of tax you’d pay if you put that money into a Roth 401(k) now.

Putting that money into a 401(k) now gives you more options later, while maximizing the money that you’re socking away for a later date.

If you’re in a very high tax bracket now, making 2x or 3x what you spend, then this is a no-brainer to me: use a traditional 401(k) and get that sweet tax write off today.

Bonus Tip: Not Maxing Out Your 401k!

The phrase “maxing out your 401k” means contributing all the way up to the $19,000 a year limit. Yes, that’s a lot! Being in the position to max out your 401k usually means you’re in a much higher income bracket or have other in the household also working. If you can max it out, you absolutely should!

Let me share a story about how I learned the importance of maxing out my 401k. After I graduated college I made quite a few financial mistakes. I bought a house at the height of the real estate bubble, I invested the money I inherited when my mom passed away with a high-feel investment advisor and I spent way more than I should.

While looking for advice on how to improve, I posted on the Bogleheads forum looking for advice on how to invest on my own. At the time there was no way I could max out my 401k from my earnings alone. I had too many expenses already, and the extra cash just wasn’t there.

A helpful recommendation emerged from the forum though: live on some of the money from inheritance and max out the 401k. This meant dipping a few hundred each month into that but allowed for the 401k to be maxed out.

As for why this is good advice, you have to think long-term. If I left that inheritance money in investments for 30 years, I’d pay taxes on it each year and again when I withdrew it. If I put money into my 401k now though, I’d get a tax-break and it’d grow tax-free!

While I’m highly in favor of having some money in a taxable account (that’s what’s allowing us to spend $80k/year and pay almost no taxes), transferring more into a 401k helped lower taxes during my highest-earning years, while building my 401k to compound for a longer period of time. Putting in $19,000 a year in your 20s is magic for compound interest.

401(k)’s can seem daunting at first. I highly recommend you set one up and try doing the following:

  • Open a 401(k) with your work.
  • Contribute as much as you can – at least up to your company match.
  • If you have the option between 401(k) and Roth 401(k), or between before/after tax, choose the “before tax 401(k)” option.
  • Find a diversified, low-fee index fund to invest in (or 3). If you’re just getting started, you can’t go wrong with putting 100% of your 401(k) money into an “S&P 500” fund. You can always sell it and move your money to another fund later once you’ve learned more about investing.
  • Stick with it!

Investing in my 401(k) was how I built confidence in myself as an investor. They’re a great sandbox to learn the ropes about how to invest without the tax consequences or endless options that are available elsewhere. Give yours a shot if you haven’t!

Why questions do you have about 401(k)s? What has been the hardest part about investing in yours? What tips would you have for someone just getting started with their 401(k)?

Adam

About Adam

Hi, I'm Adam! I help millennials invest to reach financial independence sooner than they ever thought possible. Want to see what you could do to reach FI sooner? You're in the right place!

8 Comments

This was incredibly well written and detailed. What shocks me is that 79% of Americans have access to a 401k account but less than half of them use it. Whose responsibility is it to fill this awareness gap? I doubt people are just too lazy to invest in them despite knowing how helpful they can be.

Thanks for the kind words!

One thing that could seriously help this is changing the default option when people join companies. More companies are now enrolling new employees by default, and they have to opt out to NOT invest. That wasn’t the case 20 or 30 years ago. In another 20-30 years that could have a notable impact for a lot of people who wouldn’t have otherwise invested.

Awesome, it sounds as if I am doing everything right!

The only thing I could be doing better with my 401k is contributing the yearly max. I want to eliminate my debt first, though.

Maybe also I could do a Roth instead, but I have a Roth IRA so I’m not too concerned with whether a Roth 401k would be a better option.

Thank you Adam for this detailed discussion and wise advise to invest your employer’s 401K. I hope I can share some “interesting” perspectives on the topics you discussed.

1.) Investing in a 401K will become a non-issue

Recent tax-law changes have made 401K enrollment issues relatively moot. The main change is that employees are now automatically enrolled in their company’s 401K plan default investment option (either a Target Date or Balanced Fund). Employees can opt out, and employers are shielded from employee law suits over adverse investment outcomes resulting from auto-enrollment.

See: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-automatic-enrollment

2) The 401K fund landscape is changing rapidly.

401K plans offering pages of funds are becoming relatively rare. In their place, most current 401K plans are simply offering Target Date funds with the ability to opt-out and self-manage 401K investments in an optional brokerage account.

The other change is that the regulators are more strictly holding companies and their 401k providers their fiduciary responsibilities. The some manifestations of this are 401k providers creating new lower-cost arrangements (such as collective investment trusts) and reimbursing 401k plans for marketing expenses that funds avoid by having a “captive” set of customers.

I personally have mixed feelings about these changes since CIT(s) dont have public ticker symbols so their performance cant be tracked independently. Revenue-credits (expense reimbursements from funds to 401k plans) are downright opaque.

3) Avoiding the 401k tax trap!

I’m not sure I agree with the recommendation to opt for traditional 401k(s) and ignoring the employer Roth 401k option (if offered).

The problem with the reasoning provided are traditional 401k MRDs (minimum required distributions). Basically, when you hit 70.5 the IRS forces you to take increasingly large taxable distributions from traditional 401k plans (starting at ~4%). The consequences of not taking MRDs when required are “too unspeakable to be cited here” (Thanks, Manchurian Candidate). There’s a tax “double-whammy” if you (wisely) defer taking social-security payments until the latest possible date, i.e. when you are 70. The interaction of these events are highly unfavorable tax wise since your taxable income suddenly spikes and your social security payments (largely tax free at lower income levels) become 85% taxable! The MRDs from traditional 401k are taxed at ordinary income rates rather than more favorable capital gains rates for non retirement investments.

The damn thing about this is there is absolutely nothing you can do about the tax trap once your in it and the main contributor to it is MRDs from traditional 401k balances!

The suggestion to do a conversion of traditional 401k balances to roth IRAs is not necessarily advantageous. Typically, assets in the traditional 401k plan have been accumulating and compounding for many years prior to Roth 401k plans being offered. That’s a lot of income and far more tax than you would have paid upfront with a Roth 401k election.

See: https://www.investopedia.com/articles/retirement/08/convert-401k-roth.asp

Roth 401k(s) avoid the tax trap since they are NOT subject to MRD rules and the distributions are tax-free so your social security payments don’t suddenly become taxable.

5) S&P 500 != 42

In the example cited (7%) market return for someone invested from 1900 to present. That would make them 119! Somehow, at 119 I think I’ll have other concerns.

Lets pick a different date say January 3, 2000 and say I invested $10,000 in the S&P 500 (dividends reinvested). Ten years later January 4, 2010, (still totally hungover) I check my 401k statement and find I have…wait for it…$9317. Now that was sobering!

Time for some hair-of-the-dog and another 9+ years. Check my balance today July 26, 2019, I’d have $30,270. Better, but let’s see what my return for my nearly 20 year investment would be…wait for it… 5.82% APY. This is BEFORE taxes and INFLATION take their toll! That’s far from the 9% return cited.

While, I am not making a case for avoiding investing, one should assume that market cycles can be long and cruel!

Thanks for the in depth comment Joe!

The main change is that employees are now automatically enrolled in their company’s 401K plan default investment option (either a Target Date or Balanced Fund)

This is GREAT news. Be interested how this impacts peoples net worth over the next 40 years.

Avoiding the 401k tax trap!

You make some really good points here. It’s not as simple as “401k > Roth 401k”. Paying the tax on the 401k gains when making a conversion and preparing for tax on RMD when you also have SS coming in is something I hadn’t thought of. I think the first part (tax on the gains) I’m OK with though – since you’re paying taxes on the gains, but the tax avoidance is also growing tax free (since you were able to put more in).

This would be a good one to model out and check though. I have a feeling it’ll be close (between 401k, then converting some to a Roth IRA later vs Roth 401k).

5) S&P 500 != 42

This is a scary but true point. For someone like me who’s retiring right now, the idea of the market returning only that much for that long is very scary and very real.

Thank you Adam for this detailed discussion and wise advise to invest your employer's 401K. I hope I can share some "interesting" perspectives on the topics you discussed.

1.) Investing in a 401K will become a non-issue

Recent tax-law changes have made 401K enrollment issues relatively moot. The main change is that employees are now automatically enrolled in their company's 401K plan default investment option (either a Target Date or Balanced Fund). Employees can opt out, and employers are shielded from employee law suits over adverse investment outcomes resulting from auto-enrollment.

See: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-automatic-enrollment

2) The 401K fund landscape is changing rapidly.

401K plans offering pages of funds are becoming relatively rare. In their place, most current 401K plans are simply offering Target Date funds with the ability to opt-out and self-manage 401K investments in an optional brokerage account.

The other change is that the regulators are more strictly holding companies and their 401k providers their fiduciary responsibilities. The some manifestations of this are 401k providers creating new lower-cost arrangements (such as collective investment trusts) and reimbursing 401k plans for marketing expenses that funds avoid by having a "captive" set of customers.

I personally have mixed feelings about these changes since CIT(s) dont have public ticker symbols so their performance cant be tracked independently. Revenue-credits (expense reimbursements from funds to 401k plans) are downright opaque.

3) Avoiding the 401k tax trap!

I'm not sure I agree with the recommendation to opt for traditional 401k(s) and ignoring the employer Roth 401k option (if offered).

The problem with the reasoning provided are traditional 401k MRDs (minimum required distributions). Basically, when you hit 70.5 the IRS forces you to take increasingly large taxable distributions from traditional 401k plans (starting at ~4%). The consequences of not taking MRDs when required are "too unspeakable to be cited here" (Thanks, Manchurian Candidate). There's a tax "double-whammy" if you (wisely) defer taking social-security payments until the latest possible date, i.e. when you are 70. The interaction of these events are highly unfavorable tax wise since your taxable income suddenly spikes and your social security payments (largely tax free at lower income levels) become 85% taxable! The MRDs from traditional 401k are taxed at ordinary income rates rather than more favorable capital gains rates for non retirement investments.

The damn thing about this is there is absolutely nothing you can do about the tax trap once your in it and the main contributor to it is MRDs from traditional 401k balances!

The suggestion to do a conversion of traditional 401k balances to roth IRAs is not necessarily advantageous. Typically, assets in the traditional 401k plan have been accumulating and compounding for many years prior to Roth 401k plans being offered. That's a lot of income and far more tax than you would have paid upfront with a Roth 401k election.

See: https://www.investopedia.com/articles/retirement/08/convert-401k-roth.asp

Roth 401k(s) avoid the tax trap since they are NOT subject to MRD rules and the distributions are tax-free so your social security payments don't suddenly become taxable.

5) S&P 500 != 42

In the example cited (7%) market return for someone invested from 1900 to present. That would make them 119! Somehow, at 119 I think I'll have other concerns.

Lets pick a different date say January 3, 2000 and say I invested $10,000 in the S&P 500 (dividends reinvested). Ten years later January 4, 2010, (still totally hungover) I check my 401k statement and find I have...wait for it...$9317. Now that was sobering!

Time for some hair-of-the-dog and another 9+ years. Check my balance today July 26, 2019, I'd have $30,270. Better, but let's see what my return for my nearly 20 year investment would be...wait for it... 5.82% APY. This is BEFORE taxes and INFLATION take their toll! That's far from the 9% return cited.

While, I am not making a case for avoiding investing, one should assume that market cycles can be long and cruel!

Nice article. Just some observations:

For those in the lower tax brackets the international fund will be marginally more tax efficient due to the foreign tax credit.

https://www.bogleheads.org/wiki/Tax-efficienfundplacement

Also, if one allocates all US funds to their brokerage account and all international funds to their 401k, tax efficiency is lowered. Rebalancing from US to international will be a taxable event,

Good catch on this! Someone else mentioned the foreign tax credit, which is something I haven’t looked into enough just yet. Thanks!

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