Mark Cuban says that the 401k is a no-brainer and I want to challenge that
a little bit. I want to scrutinize that, look at the pros and
cons of that here on Limitless TV.
Alright, everybody. We're back here talking about 401ks and you know, we're
talking about it because it's the only real retirement plan that Americans are
really taught. Sure your tax advisor will mention IRA this or hey, someone will
tell you should invest in the stock market but at the end of the day, we're
really told, go get a job after you get your degree and put your money into a
401k and recently, Mark Cuban, a man that I admire, I love watching him on Shark
Tank, this is what he said though that was kind of surprising, he was comparing
the 401k to savings accounts and he said, "If you have a 401k match and you're not
forcing yourself to put in as much as possible,
you're an idiot." Now those are really strong words and I got to tell you right
now that on one hand, I totally agree with Mark, on another hand I completely
disagree. If you're comparing Americans who just as a whole are not really good
at saving then yeah, I agree with Mark. Putting money in a 401k is a really
smart choice. Why? Because if we're not putting in money in a 401k, we're likely
also not saving our money and as a result, what does that mean? It would be
better to put money in a 401k than nothing. Why? Because hopefully you're
averaging a few percent on your money probably doing better than you are on
your bank but what I want to also talk about today is where I disagree with
mark because the reality is, if you're putting money in a 401k, it means that
you really don't have a retirement plan. Let me break it down for you.
I want to talk about the difference between projected returns and actual
returns. I'm going to debunk right now the number one flaw in 401k thinking that
you don't get told because everyone's going to say for example, oh, hey let's
talk about your projected return and then we're going to compare it versus your
actual return and out there, let's just say, you know, we all have been through
the ups and downs or your parents were, where they were losing a 50% of their
money in that in their 401k's all in one swoop, in one moment and then it took
years to build it back up. Right now 401k's are actually on the higher end
of the cycle and what a lot of people don't realize is, we're still just
catching up from our losses from yours earlier but this is what we're told, hey
let's put money in a 401k and let me just kind of give you a feel for the way
that the numbers get misrepresented. If I have a thousand dollars
in my 401k and then all of a sudden that next year, I double my money, now this
doesn't really happen but let's just say I make a hundred percent return, look at
the percentages in the math. If I make a hundred percent return then that
$1,000 turned into what? It turned into $2,000 and by
the way, if you doubled your money in anything, you probably be pretty happy
but guess what happens the year next year? The market really takes a dump and
it goes down 50% which what's 50% $2,000? Well, that's $1,000.
Now hold the phone, I started with a thousand and now I'm back at a thousand
but guess what they're going to say I return if you want to take a 100%
up and 50% down, they're going to say that you are averaging 50%
on your 401k between the two years. Now look at that for a minute,
remove for a moment the fact that someone's earning fees whether you make
or lose money and someone else is charging you for managing your money in
this manner. Look at the fact that they're claiming a 50% return on
your money when the reality is, you're at the same dollar that you
started with but they're claiming it as a 50% return, these numbers get
grossly misrepresented on a regular basis and so what ends up happening is,
hey, I had a great year in the stock market last year, I had a great year in
my 401k's, I made 20% and I'm thinking, great. What does that really mean? What is
that 20% and what does it mean when you actually take into account your losses
and when you average that out? If you do the real math, if you do the actual math,
this isn't 50%, it's you've made money and you've lost
money and there are no gains, you're not up but someone else did get rich or
someone else did make money. So Mark Cuban, this idea of if you have a 401k
match, if it's your only savings plan or for those of you that like Dave Ramsey
out there, yes, have some type of savings plan and if you don't have a plan then a
401k is a really great default. For those you however that have been
watching my channel for a while and you're saying, okay, Kris. Well I know
that you're into this thing called real estate, let's just do a real quick 401k
analysis and compare it to what would happen if we put it into something like
real. First of all, the 401k sustainably tied
to the market, you have no control over it.
So I've got a really big problem at the end of the day with this idea that on
the 401k map, I don't have control but over my real estate, I also don't have
total control but I have a lot of control so let's just talk about 401k's
for a moment and let's compare it to the beautiful world of real estate.
Just closed on a couple of properties, made a nice little grundle of money and I want
to just talk for a moment about the differences. So I've never put money in a
401k. When I first got married, my wife, I think had up to I think $1,000 in a 401k
and as soon as we could take it out once we started seeing what the real estate
was doing, we did. It already right now seem to me like, well Kris, you don't
diversify. No, diversification is for people that don't know what they're
doing. I will not put some money in the IRA, the stock market or the 401k, right.
I'm pretty biased because I found a strategy that works for me and the
reality is, I do not have any friends that put money in a 401k and become
wealthy, none. So why put your money in anything that's guaranteed not to work?
With a 401k, you have no control with a real, with real estate, you have some
control. I may not be able to control what the market does when it goes up and
down but I do own this asset and I can choose the strategy of what I'm doing
with it so if you've watched some of my videos on short-term buy and holds on
single-family homes, I'll take you into the very best markets
around the nation where you can be earning 15%, 20% plus, those are
really aggressive returns. You do that for ten years and compound it and grow
that, you can build a nice little fortune, a nice little retirement income for yourself.
So for some of you, if you really explode it, you can build a fantastic level of
financial freedom with that model. So I've got no control here, I have some
control over here. The next thing is, I want to talk about speculation. My 401k,
it pays me no cashflow. Now this is a violation of one of my investment rules,
if I put money into it, it should pay me and I'm not talking about just some day, I
wanted to pay me now. There's no cash flow that comes in on my 401k, there are
some exceptions to this rule because I will take money and invest it in
business and some businesses don't immediately pay cash
flow but ultimately you're going to see me always investing in either real estate
or business because those are the two things with ROI's big enough to give
you a chance for retirement so while I don't get a cash flow over here, guess
what real estate does. Real estate pays me and in most cases, it pays me monthly.
Now that's really important to me because if I'm actually getting paid
then I'm getting freedom dollars coming into my bank account on a monthly basis.
This is a really big deal for you because you buy a property and you have
a $300 month cash flow, that's not life changing but $300 might cover
your car payment so you do three four more deals and now the sudden, guess what.
Your mortgage is taken care of, your biggest expense for the average person
when you're making $1,000 a month cash flow or $2,000 a month cash flow in real
estate, you can't retire but you know what? That's now socking away one to two
thousand dollars a month that you can snowball into your next deal and fast
forward several years and guess what that snowball turns into, bigger and
bigger and bigger and bigger and bigger. Cash flow is a big part of what makes
that happen and real estate is a business, it also means that when it has
its downs, it'll pay for itself with that cash flow. When a 401k has downs, you may
never recover from it or you'll have to be dedicated for years to step into any
kind of recovery. The next thing is that 401k for me, it has no equity which means
it can grow with time and it can expand and it can become more but real estate, I
can purchase it with equity, that's like saying I could buy a stock for $1 but
now on this side of the fence, I have the ability to buy that stock for a 20%
discount or for 80% of its value and I think about that for just a minute, that
equity that you walk into creates what I call a margin of safety so if the market
tanks with a 401k, even one dollar, you're out. With real estate, if it goes down a
dollar, you're not out, you actually have some built in protection and so that's
another big difference of why I love real estate compared to a 401k model.
There's another thing that I love about real estate, is that I have the ability
to multiply my assets, it's just not applicable here
on the 401k side of the offense. What I mean by this is as my real estate
portfolio grows, I can make my real estate make babies and I'm
going to stud out my real estate and I'm going to remove some of the equity or I'm
going to sell off a property and I'm going to put it into additional property so that
it can expand and so that it can grow and so that it can become more. Friends,
these are just some of the reasons why at the end of the day Mark Cuban's says
401k, you'd be an idiot not to participate and I would say if that's
your only strategy for getting where you want to go in life but if you've been
subscribing to my channel which you have done correct, subscribe, ring the bell. If
you're subscriber and you've been watching some of these videos, I hope
that I'm waking you up to a call to go back to our original roots, the family
farm, the United States Constitution where we were taking care of when we
have real estate, it's written to benefit the individuals that do. Get back to that
model because it wasn't broken, it does work, I don't know how to do it with a
get-rich-quick sustainable model but I will tell you that if you'll be in it
for a 10-year period of time, you can create a great deal of freedom in your
life with it so at the end of the day, friends, weigh these out and no, I would
not have both in your life. I would pull out of your 401k, I would go into real
estate because I believe that it's going to give you so much more than your 401k
everyone and that's putting your financial freedom and your financial
future into your hands. This is a pretty polarizing opinion and some of you might
agree with you, some of you don't, you know what though? Go ahead and comment
below, share your thoughts, share your ideas and share your point of view and
then make sure you subscribe and ring the bell and we'll see on one of our
next videos.